Common terms agreement

A common terms agreement is a finance document that sets out the representations, undertakings, events of default and other borrower terms that apply across multiple senior debt facilities in a single project finance structure. Individual facility agreements then state lender-specific economics such as commitment amount, pricing and repayment schedule. IRENA's Open Solar financing term sheet states that the common terms applicable to all senior debt facility agreements are set forth in the common terms agreement and include purpose, availability period, repayment and prepayment, tax provisions, undertakings, representations and warranties, and events of default, with provisions based where applicable on Loan Market Association senior facilities forms.

Common terms agreement use on bank project finance desks

PF desks encounter the common terms agreement when commercial banks, export credit agencies, multilaterals or noteholders lend in parallel to the same project company under separate facility agreements but a shared covenant and default framework. The structure reduces inconsistency across lender groups that cannot, or prefer not to, sit under one multi-lender facility.

JMLSG describes syndicated facilities as arranged under one set of terms and conditions, usually following LMA recommended forms, with each lender's liability limited to its participation. A common terms agreement extends that shared-term logic across several facility agreements rather than a single syndicated contract. Syndication of each tranche may still proceed under its own arrangers, while the common terms keep the borrower under one monitoring and default regime through to financial close and thereafter.

Mechanics and institutional scope

Typical common terms cover conditions precedent shared by all facilities, information undertakings, financial covenants and ratio definitions, account and waterfall mechanics, permitted debt and security carve-outs, and a single events-of-default schedule. IRENA's term sheet contemplates senior loans incurred under a common terms agreement supplemented by individual facility agreements, and contemplates that the financial model and ratio methodologies be set in the common terms. Administrative roles are split: each facility's lenders appoint a facility agent, while a security trustee or security agent appointed under an intercreditor agreement holds common security for all senior creditors. Amendment and waiver thresholds for common terms are usually set so that no single facility can unilaterally rewrite shared covenants that affect other lenders.

Boundaries

A common terms agreement is not an intercreditor agreement. The former binds the borrower to shared finance terms; the latter ranks creditors and controls enforcement among them. Nor does a common terms agreement replace the individual facility agreements that create each lender's commitment and pricing.