Key Clauses of a Shipping Loan Agreement

The aim of this chapter is to provide a general overview of certain key clauses commonly found in a shipping loan agreement. These are known as “commercial” terms and they purport to maintain throughout the loan period the business activities of the obligors under the loan agreement within a pre-agreed framework. This is frequently opposed by the obligors, who are seeking the least possible restrictions in running their business. This makes such provisions the subject of the toughest negotiation between the parties and therefore the most difficult to draft. The critical concern for the draftsperson, usually acting for the lender, is how to “tighten up” such clauses from a lender’s perspective and, at the same time, ensure that they are well-adapted to reflect the secured nature of the transaction and the shipping background. This becomes even more challenging if, during the negotiations, certain borrower’s comments are accepted by the lender. In that case, the draftsperson is required to amend such clauses, ensuring that the borrower’s point is met, without unreasonably prejudicing the lender’s position. Together with the financial terms of the relevant loan (e.g. the loan amount, the margin, the repayment profile, the interest periods, the last availability date), such clauses constitute the “heart” of most financing documents. We shall call such clauses “operative clauses” (a list and analysis of which can be found below).