Solvency Certificate
(Pro-Borrower)

Summary

This template is a solvency certificate used by the borrower group to satisfy a condition precedent of a loan transaction. This template includes practical guidance, drafting notes, and an alternate clause. A solvency certificate gives comfort to lenders that the transaction will not be voided as a fraudulent transfer or conveyance in a bankruptcy of the borrower. This template assumes a borrower with subsidiaries. The certifications in this solvency certificate are set up to be given with respect to the borrower and its subsidiaries on a consolidated basis. However, in some transactions, the loan parties (i.e., the group of borrower entities that will be providing credit support for the loans in the form of guarantees and collateral security) may also include a parent entity of the borrower or, in some cases, the subsidiaries providing credit support may be limited to a "restricted subsidiaries" subgroup only. In those instances, the solvency certificate may be modified to include the parent or only the subset of restricted subsidiaries (assuming, of course, the borrower and financial officer are comfortable making the required certifications). In addition, in some cases, the solvency certificate may be set up for the certifications to provide separate certifications for the borrower on a stand-alone basis. The certificate would then include certifications both with respect to the borrower on a stand-alone basis and with respect to the entire credit group on a consolidated basis). Some lenders may also require that the borrower parties provide separate solvency certifications or solvency certificates for each borrower and guarantor independently. However, this often proves to be impossible or impractical since the borrower may not have separate financial statements or it may be impractical to perform the financial analysis necessary to confirm the required certifications. This template includes provisions that are borrower-friendly. See Solvency Certificates, Solvency Certificate (Pro-Lender), and Representations and Warranties in Credit Agreements for additional guidance. For a full listing of key content covering a credit agreement, see Credit Agreement Resource Kit.