Finance, Technology and Macroeconomics

Purchase Agreement

From experience: this is the international debt market equivalent of the issue management agreement. It is an agreement between the underwriter and the borrower.

A Purchase Agreement has several parts, which are the following:

1. Sale of Notes; Guarantee - it conveys that the Issue Manager agrees to purchase the Notes, which are irrevocably and unconditionally guarantted by the government, at a determined price.

2. Representations and Warranties - these are provisions made by the issue manager, he borrower and the guarantor. The reps of borrower are usually on the offering circular, legal basis of existence of the corporation, financial condition, authority to borrow, tax payments, legal form of the agreements, governing laws, non-existence of material default, ranking against other indebtedness with similar structure (pari passu), non-occurence of material adverse change and clear market. There are a number provisions but I mainly listed those that are mostly commercial. Our responsibility is to check if we have signed a waiver as regards to provision of other loan agreements that we have not satisfied or else, it may be a ground for default given our reps.

The other parts are the Indemnity and Contribution; and Currency and Withholding. Our legal group argues against the existence of this provision. Our responsibility, on the other hand, is to cap the provisions just in case the other party won't budge to remove this provision.

3. Covenants - This is on the undertaking of the borrower and the guarantor. Basically, it is on tax payment, notification in the event of material adverse change, no amendment to the Offerincg Circular that has a 9-month validity period (I still have to check if this is a standard market practice), qualify the Notes for offer and sale under the "Blue Sky" laws, Reg 144A, Reg S, not permitting Affiliates to resell any of the Notes during the two years after Closing Date and not addendum or enhancements to the subject-security.

As regards "Blue Sky", I remember a former colleague, Claire Armedilla, asking Jim Grandolfo of Allen and Overy on its definition. Basically, it is opening up the security to all provisions of the Regulation. It came from "giving the entire blue sky", which is the another version of "sky is the limit". I am not sure about this but I'll note it.

4. Closing - This part is about the purchase price and the underwriting fee. Last year, we received criticism on the fee we paid for the notes we issued last year. Actually, it was partly my fault because I didn't negotiate for reduction in fees given that we gave up the derivative instrument they attached to their proposal. I can't remember why I missed it. Maybe because we had to update the full powers and fast-track everything given that investors are usually on vacation on August. Nonetheless, we have adopted some policy changes that relatively expedite our financing process.

It is in this part where the custodians of the notes are determined and where should it be settled, such as the Euroclear System and Clearstream Banking. I'll discuss this in another post, once I am done with this.

5. Conditions Precedent - This provision is on deliverables such as legal opinion prior to and on the Closing Date, such as legal opinions, comfort letter from the auditor, no downgrade in investment rating and certifications.

6. Termination - Surprisingly, the Manager has the absolute discretion in termination the agreement in the event that its is impractible and inadvisable to proceed with the offering and delievry of the Notes. In one negotiation that we had a year ago, I remember that a move of 50 bps in the benchamrk rates would mean postponement but not termination.

7. Survival of Representations and Obligations - Self explanatory but the reps and warranties of the borrower and guarantor only survive up to the Closing Date.

8. Notices - Just the addresses.

9. Appointment of Agents for Service; Waiver of Immunity - Self-explanatory. Just in case we get sued, we authorize someone to receive the summons aborad on our behalf. Hehehehe.

10. Expenses - Self-explanatory. The Manager shall pay or cause to be paid the fees of the Manager’s legal counsel, the Manager's out-of-pocket expenses and those of the Manager’s legal counsel, the cost of financial printers, listing fees and Fiscal Agent expenses. Except as provided in this Clause 10, NPC, PSALM and the Republic shall pay all their own costs and expenses related to their obligations under this Agreement and the offering of the Notes.

11. Counterparts -This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

12. Applicable Law

From investordictionary.com: A signed document stating the purchaser's agreement to buy and the seller's agreement to sell a specified property under stated terms and conditions.

My foremost responsibility is to review the commercial terms, while the Legal group assesses the legal terms. I try, as much as possible, to insure that the terms and conditions are improvements compared to our past transactions. In other words, we try to protect our corporation's ass as much as possible.

posted by JD @ 3:56 PM