Q: Is it appropriate to include events of
default in a demand facility letter? My borrower wants the bank to
include them in the document as examples of when the bank might
A: Events of default are really inconsistent
with a true demand facility, so including reference to them in the
facility letter should be avoided if at all possible.
Generally speaking, the bank will want to maintain as much
flexibility as possible in exercising its right to make demand upon
a borrower for repayment for any reason. Ideally, the bank will
want the decision to make demand to be completely in its full
discretion. Including examples of events of default for
illustrative purposes might be construed by a court as limiting the
bank to making demand for only those types of events that are
similar in character or severity to the ones listed or described in
the facility letter.
Sometimes a new borrower will insist upon the inclusion of
events of default in the facility letter in order to be comfortable
with the banker-customer relationship. In that case, the bank will
need to ensure its facility letter includes a clear statement
the demand nature of the credit
facility is the paramount feature of that credit;
the inclusion of events of default is
for illustrative purposes only and they have been inserted as the
express request of the borrower; and
the reference to events of default
shall not detract from the demand nature of the credit facility or
limit in any way the bank's rights to make demand for the
repayment of the indebtedness, to cancel or terminate the
facilities, or to enforce its security at any time for any
In this way, the bank can hopefully avoid having its
accommodation of the borrower's request unfairly prejudice the
bank's right to make demand or restrict the exercise of the
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