Erroneous Payment Clauses
(Credit Agreement)

Summary

These erroneous payment clauses for a credit agreement are used in a syndicated loan transaction to require lenders to return errant payments made by an administrative agent. These clauses include practical guidance and drafting notes. These clauses are intended to protect against the kind of expensive mistake seen in In re Citibank August 11, 2020 Wire Transfers, 2021 U.S. Dist. LEXIS 28425, 2021 WL 606167. In that case, Citibank was administrative agent for a loan taken out by Revlon, Inc. The agent wanted to make $7.8 million in interest payments to the lenders. Instead, Citibank inadvertently wired the entire principal of the loan plus interest in full to the lenders, to the tune of nearly $900 million. Many lenders returned the payment, but lenders holding some $500 million did not. Many of the suggested fixes to avert this in the future related to a bank's back-office operations. Although the case was vacated on appeal, these clauses address the problem from a contractual standpoint. They require lenders to return such erroneous payments within one business day. Lenders are also required to notify the agent of discrepancies between amounts in the payment notice and the amounts it actually receives. For guidance on related credit agreement provisions, see Commitments and Credit Extensions Clauses (Credit Agreement), Tranches of Loans and Loan Mechanics in Credit Agreements, Repayment and Prepayment Provisions in Credit Agreements, and Agency Clauses. For a full listing of key content covering a credit agreement, see Credit Agreement Resource Kit.