Lender consents: caveat underwriter?

Author: | Published: 9 Dec 2014

Indian issuers are increasingly selling securities without consulting their lenders. Herbert Smith Freehills' Siddhartha Sivaramakrishnan and Gareth Deiner explain it may make underwriters liable for tort

Recent offering documents for debt and equity capital markets transactions in India have made extensive disclosure of the absence of lender consents for the securities being sold. These consents are typically required as a result of covenants in issuers' pre-existing financing arrangements which require them, as borrowers, to obtain the consent of their lenders before making a debt or equity offering. Under the terms of those financing arrangements, failure to obtain consent is likely to constitute a breach of covenant, which in turn, could trigger events of default, acceleration and cross-defaults across other financing arrangements.

Issuers have various reasons for not seeking lender consents, including accelerated timelines for offerings and the costs implicit in the actual process of obtaining those consents. Disclosing the absence...