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Tree with Tree's assets. Tree agreed to maintain minimum
leverage ratios, current ratios, and interest coverage ratios19
and to meet minimum cash-flow requirements.
J. Comparison of Terms Governing Advances from LIIBV and Bank
Loans
1. Similarities Between Bank Loans and LIIBV Advances
The bank loans and LIIBV advances for the years in issue
were in writing. All were for general corporate purposes or
acquisition of other businesses. All had some representations
and warranties to the bank or LIIBV about financial conditions of
the recipient. All required corporate existence and authority,
punctual payments, some type of periodic reporting, and notice of
default. All imposed limitations on further encumbering any
security. All treated nonpayment, incorrect or false
representations, noncompliance with material terms and
conditions, insolvency or bankruptcy, and other similar events as
a default. Most had cross-default clauses and acceleration
clauses. Most were guaranteed by a parent. All allowed
prepayment without penalty.
2. Differences Between Bank Loans and LIIBV Advances
Bank loans always had borrowing limits. The LIIBV advances
were generally not limited. Banks lent less than LIIBV advanced.
19 Interest coverage ratios relate the financial charges of
a firm to its ability to service them. An interest coverage
ratio is earnings before interest and taxes net of non-cash
expenses such as depreciation and amortization (EBITDA) divided
by interest expense. This ratio is one measure of a company's
ability to pay interest.
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