A mandate letter is a borrower’s written authorization to one or more banks to assemble a syndicate to raise the financing required by the borrower.  It outlines the basic loan terms and conditions that were established in principle between the borrowers and mandated lead arrangers (MLAs) in the term sheet.

The mandate letter will usually be signed and issued to mandated banks with the banks’ term sheet attached to it.  It enables the MLA to seek internal credit approval for its final hold amount and underwriting approval for the underwritten amount as well as to test the marketability of the facility.

The content of the mandate letter depends on whether the arranger has agreed to underwrite the facility or is mandated to use its “best efforts” to arrange the required funding.  It commonly covers such matters as:

  • The arranger’s agreement to underwrite the facility or to syndicate the facility on a best-efforts basis;
  • The amount of the total commitment and exclusivity provisions;
  • The basic terms and conditions of the facility;
  • Syndication issues, such as the syndication timetable, preparation of an information memorandum, presentations to prospective lenders, the syndication strategy and a material adverse change, a clear market, a market flex provision; and
  • Indemnity clauses.

The obligations of the MLA and underwriters under a mandate letter are typically subject to a condition that “no material adverse change” occurs from the date of the mandate letter to the date of signing of the facility documents.  The material adverse change (MAC) clause allows the arrangers to “pull” their commitment in circumstances that might adversely affect obligor performance, it being triggered by an adverse event or circumstance in (a) the business or condition of an obligor, (b) an obligor’s inability to comply with its contractual obligations, or (c) the markets.

The test is subjective and the scope of the MAC is very wide and it is generally couched in general language.

The obligations of each Mandated Lead Arranger and each Underwriter under the Mandate Documents are subject to the absence, in its opinion, of any event(s) or circumstance(s) [...] which, in its opinion, has (have) adversely affected or could [...][in the opinion of the relevant Bookrunner or Underwriter prejudice Syndication] during the period from the date of the [mandate letter] to the date of signing of the facility documents.

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