Guidance Note on FATCA for Agents in Model II IGA Jurisdictions
[•] 2014
Please refer to our guidance of February 2012 for background on how FATCA withholding can potentially arise. In summary, the unusual nature of FATCA means that it creates compliance and tax risk which is not allocated by historic LMA documentation; this may create exposure for all parties, particularly the Agent.
It is important to note that FATCA is complex legislation and its precise effects on the loan market currently remain unclear. The approaches in the LMA investment grade template facility agreements, the LMA June 2014 Summary Note on FATCA and this guidance note are therefore, necessarily, based on a view of how FATCA is likely to apply, but there is no guarantee that that is in fact how FATCA will apply. Moreover, there is no simple drafting "solution" to FATCA; the possible approaches in the LMA investment grade template facility agreements, the LMA June 2014 Summary Note on FATCA and this guidance note should be considered on a deal-by-deal basis, in light of the factual background and the commercial deal. Accordingly, all Members should seek US tax advice and use and/or modify the language in light of that advice. Members may have differing views on the applicability of FATCA to them and their deals and accordingly the drafting approach in this guidance note is very much a guideline.
Agent exposure is likely to be significantly reduced where the Agent benefits from an intergovernmental agreement ("IGA") between the US and the jurisdiction in which the Agent is operating.
The most commonly agreed approach for investment grade transactions is now contained in the suite of English law governed LMA template investment grade facility agreements, as also set out in our June 2014 Summary Note on FATCA.[1] That approach is drafted on the basis that any Agent operates in a Model I IGA jurisdiction and is not a Qualified Intermediary that has elected to assume primary withholding responsibility. We are not aware of any bank which is a Qualified Intermediary that has elected to assume primary withholding responsibility with respect to its Agency function.
Accordingly, in most cases in which the Agent is located in a Model I IGA jurisdiction, the FATCA language in the LMA template investment grade facility agreements (and the June 2014 Summary Note on FATCA) should generally set out a suitable approach. Where that language is included and the Agent is located in a Model I IGA jurisdiction, in most cases the Agent will simply pass on information about the Lenders' FATCA status to the relevant Borrower. In such cases the relevant Borrower should be the party required to withhold on account of FATCA and the Agent itself should generally not be responsible for withholding.
However, where an Agent is located in a Model II IGA jurisdiction,that Agent could itself have to withhold on account of FATCA.
In the event that an Agent is required to itself withhold on account of FATCA, the Agent should be entitled to do so without grossing-up payments to the relevant Lender(s) under Clause 13.9 (FATCA Deduction) of the LMA template investment grade facility agreements.
However, the Agent may also wish to ensure that it is protected against any liability which might result from its failure to withhold on account of FATCA which was caused by a Lender failing to provide (and keep up to date) accurate information about its FATCA status. In order to address this risk, the language below adds to the language which is contained in the LMA template investment grade facility agreements to provide for an Agent to be indemnified against losses it suffers as a result of a Lender failing to provide and keep accurate and up to date information required by the Agent to certify or establish that Lender's status under FATCA.
a)Provision indemnifying Agents in relation to information provided to Agents by Lenders
Insert the following as a new sub-paragraph (i) to Clause 13.8 (FATCA Information):
(i)If a Lender fails to supply any withholding certificate, withholding statement, document, authorisation, waiver or information in accordance with paragraph (e) above, or any withholding certificate, withholding statement, document, authorisation, waiver or information provided by a Lender to the Agent is or becomes materially inaccurate or incomplete,then such Lender shall indemnify the Agent, within three Business Days of demand, against any cost, loss, Tax or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (including any related interest and penalties) in acting as Agent under the Finance Documentsas a result of such failure.
41189-3-256-v0.5 / - 1 - / 70-20410455[1] Whilst this note refers specifically to investment grade transactions (and any clause references in this note refer expressly to the LMA Multicurrency Term and Revolving Facilities Agreement), it may also be used by those wishing to incorporate FATCA wording within other LMA facility agreements. However, any user wishing to incorporate wording from this Guidance Note into other LMA facility agreements must ensure that the clause references are adapted appropriately. Users should also consider other changes that may be relevant to the document in question - for example providing Security Trustees with similar protection to that given to Agents in these approaches - seeking legal advice where necessary.