Note: Swingline Loan

what is a swingline loan

Read This Before Using Document

Read This Before Using Document

Swingline loans  ( www.practicallaw.com/8-382-3859) are short-term loans (such as five days) that are used by borrowers on short notice for cash management needs. Swingline loans are made by one swingline lender, although each other revolving credit lender is obligated to purchase a risk participation in the swingline loans if they are not repaid when due. Only the swingline lender receives a swingline loan note for the full amount of the swingline loan.

A swingline loan note evidences the borrower's obligations to a swingline lender under a loan agreement that has a swingline sub-facility (as part of a larger revolving credit loan  ( www.practicallaw.com/9-382-3774) facility). Traditionally, lenders requested a note to be able to present it to a court as evidence of the borrower's debt obligation in the event the borrower failed to repay the loan. New York law does not require notes to be used in lending transactions, and the loan agreement is sufficient evidence of the loan. Many large syndicated loans  ( www.practicallaw.com/4-382-3861) are "noteless" deals where a note is only given to a lender if it requests one.

Lenders often want notes for internal record keeping purposes, or if they intend to pledge their loans to the Federal

Reserve Bank (FRB) as collateral for funds borrowed from the FRB. For more information, see Practice Note, Assignments and Participations of Loans: FRB Assignments  ( www.practicallaw.com/8-381-8532) .

Not a Negotiable Instrument

This note is not a negotiable  ( www.practicallaw.com/9-385-4119) instrument under Section 3-104 of the Uniform Commercial Code  ( www.practicallaw.com/1-382-3891) (UCC) because it states that it is subject to the terms of the loan agreement. To be negotiable, a note must contain an unconditional promise to pay the loan. A note does not contain an unconditional promise if it is subject to or governed by the terms of another agreement (UCC § 3-105(2)(a) ). An instrument is not negotiable unless the holder can ascertain all of its essential terms from its face.

Assumptions Used

This standard form of swingline loan note has been drafted on the following assumptions:

There is a separate loan agreement that specifies the terms of the loan.

Drafting Considerations

The form of note is typically drafted by counsel to the administrative agent and is attached as an exhibit to the loan agreement. The form of note is not usually subject to negotiation.

Definitions

Administrative Agent's Office, Agents, Collateral, Dollars, Events of Default, Guarantors, Letter of Credit Issuer, Obligations and Swingline Loan.

Source: us.practicallaw.com

Category: Credit

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