THE ROLE OF THE LAWYER IN THE INTERNATIONAL DEBT OPERATIONS OF DEVELOPING
Daniel D. Bradlow
Reference: Document No.6,
III. The Stages of a Debt Transaction and
the Role of the Lawyer
Any debt transaction can be divided into the following stages:
- Identification: the borrower identifies the purpose
for which it intends to borrow money.
- Preparation: the borrower prepares the request
for funding and decides which sources of funds to approach for money.
- Appraisal: those sources of funds that have been
approached by the borrower assess the borrower's proposal and decide
whether or not to fund the proposal.
- Negotiation and Approval: the two parties negotiate
the terms of their financing arrangement and draft the agreement.
This stage also involves the submission of this agreement to whatever
approval processes the borrower requires for the agreement to become
a legally valid and binding commitment.
- Implementation: the loan contract is effective
and the borrower is able to access the loan proceeds provided it
meets all its contractual obligations. The stage ends when the contract
is fully performed.
In this stage, the borrower determines the purpose for which it intends
to borrow and begins to assess the feasibility of that purpose. The
decisions that the borrower must take at this stage are strategic business
or economic decisions. Given the strategic nature of the decisions being
taken at this stage, the lawyer's role is limited. The lawyer's advice
may be needed in regard to some initial questions relating to the feasibility
of the purpose or to specific aspects of the proposed financing strategy.
Despite his/her limited role, it is useful for the lawyer to participate
in the discussions at this stage of the transaction for a number of
reasons. First, if the lawyer is party to these discussion, he/she will
have a better understanding of the borrower's business or economic objectives
in the transaction and will be better equipped to advance these concerns
at the later stages of the borrowing process. In addition, the lawyer's
explanation of the legal consequence of the borrower? different financing
options may help the borrower make key decisions at this stage.
Second, if the lawyer participates in these discussions, he/she will
be able to identify legal issues that may arise if the transaction proceeds
and can advise the borrower about how to address these issues in the
most effective and least costly way. For example, if the borrower's
plans require government approval the lawyer can explain the process
for obtaining this approval and give the borrower some idea of the potential
impact of this process on the borrower's plans. In addition, if the
borrower plans to use the funds for a project that will have significant
social and environmental impacts, the lawyer can begin advising the
borrower on what measures it should take to assess these impacts and
to deal with the associated risks.
Stages of a Debt Transaction and the Role of the Lawyer (continued)
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