Term Facility Agreement Template for New Zealand

A Term Facility Agreement is a sophisticated commercial lending document that establishes the legal framework for providing fixed-term funding to borrowers in New Zealand. This agreement creates binding obligations between lenders and borrowers, setting out the terms under which funds will be advanced, managed, and repaid over a predetermined period. Unlike revolving credit facilities, term facilities provide certainty of funding for specific business purposes such as acquisitions, major capital expenditure, or debt refinancing.

When do you need this document?

You need a Term Facility Agreement when seeking substantial commercial funding for defined business purposes. This document is essential for property acquisitions where you require certainty of finance to complete transactions within specified timeframes. Corporate restructuring scenarios often necessitate term facilities to refinance existing debt or fund operational changes. Manufacturing businesses expanding production capacity rely on term facilities for equipment purchases and facility upgrades. Infrastructure projects require these agreements to secure long-term funding for construction and development phases. Private equity transactions frequently use term facilities to finance leveraged buyouts or portfolio company acquisitions.

Key legal considerations

Financial covenants form the backbone of term facility agreements, requiring borrowers to maintain specified ratios such as debt-to-equity, interest cover, and minimum net worth. These covenants protect lenders by ensuring borrowers remain financially viable throughout the facility term. Security arrangements typically include guarantees from related entities, charges over business assets, or personal guarantees from directors. Default provisions outline specific events that trigger acceleration of repayment, including covenant breaches, insolvency events, or material adverse changes to the borrower's business. Interest rate mechanisms must be clearly defined, whether fixed, floating, or based on specific benchmarks like the Official Cash Rate. Representations and warranties require borrowers to confirm their legal capacity, financial position, and compliance with applicable laws at drawdown and throughout the facility term.

Legal requirements in New Zealand

New Zealand term facility agreements must comply with the Contract and Commercial Law Act 2017, which governs contract formation, interpretation, and enforcement. The Credit Contracts and Consumer Finance Act 2003 applies where borrowers are natural persons or meet specific thresholds, requiring extensive disclosure of credit terms and fees. Security interests must be registered under the Personal Property Securities Act 1999 to ensure enforceability against third parties and insolvency administrators. Anti-Money Laundering and Countering Financing of Terrorism Act 2009 obligations require lenders to conduct customer due diligence and ongoing monitoring of facility usage. The Fair Trading Act 1986 prohibits misleading or deceptive conduct in commercial lending, requiring accurate representation of facility terms and conditions. Interest rate disclosure must comply with Credit Contracts legislation where applicable, and security documents require proper execution and registration to maintain enforceability.