This Legal Update explores why, in order for an underlying loan to be included in a warehouse facility’s borrowing base, the underlying loan’s documentation cannot contain confidentiality restrictions that could impair the lenders’ rights under the warehouse facility and access to important information about the underlying loan.

Examples of Eligibility Criterion – Confidentiality Restrictions:

• The Underlying Instruments for such Loan do not contain a confidentiality provision that would prohibit the Administrative Agent or any Secured Party from exercising any of their respective rights hereunder or obtaining all necessary information with regard to such Loan, so long as the Administrative Agent or such Secured Party, as applicable, has agreed to maintain the confidentiality of such information in accordance with the provisions of such Underlying Instruments.
• The Underlying Instrument for such Loan does not contain confidentiality provisions that restrict the ability of the Facility Agent to exercise its rights under the Transaction Documents, including, without limitation, its rights to review such debt obligation or Participation Interest, the Underlying Instrument and related documents and credit approval file.

How May Confidentiality Restrictions Arise?

• For loans made by a private credit fund, the principal loan documentation (such as a credit agreement) commonly includes a confidentiality provision that restricts the administrative agent and lenders from disclosing the borrower’s confidential information to third parties. The scope of confidential information may be negotiated, but typically includes information relating to the borrower’s business and financial condition. There are usually carve-outs from the confidential information definition (e.g., for publicly available information) and for permitted disclosures (e.g., if required by law or regulation), which may also be negotiated.
• There is often a carve-out permitting disclosure to a lender’s prospective assignee, subject to compliance with certain specified conditions (e.g., a requirement for the prospective assignee to be party to an agreement containing...