Conditions and Covenants: The Banker’s Guardrails that Keep Borrowers on the Road to Repayment
Product ID : DEVS-0004
Level : Beginner
Duration : 60 Minutes
A frequent speaker, instructor, advisor, and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking and training on a wide range of risk, credit, and lending topics. As former SVP and senior credit policy officer at SunTrust Bank, Atlanta, he was responsible for developing, implementing, and administering credit policies for SunTrust's wholesale lines of business--commercial, commercial real estate, corporate investment banking, capital markets, business banking, and private wealth management. He also spent three years as managing director and credit approver in SunTrust's Florida commercial lending and corporate investment banking areas, respectively. Prior to SunTrust, Dev was chief credit officer for Barnett Bank's Palm Beach market. Besides stints at other banks in Florida, Kansas City, and Ohio, Dev's experiences outside of banking include CFO of a Honolulu construction company, combat engineer officer in the U.S. Army, and college economics instructor in Hawaii, Missouri, and Florida. A graduate of Ohio State University and the ABA Stonier Graduate School of Banking, he earned his M.B.A. from the University of Hawaii.
Dev serves as an instructor in RMA's Florida Commercial Lending School, the Stonier Graduate School of Banking, the Southwestern Graduate School of Banking, the Pacific Coast Banking School, and the American Bankers Association's (ABA) Commercial Lending. His school, conference, and workshop audiences have included participants drawn from the ABA, RMA, OCC, Federal Reserve, FDIC, FFIEC, SBA, the Institute of Management Accountants (IMA) and the AICPA.
Dev has written about credit risk management, financial analysis and related subjects for the ABA's Commercial Insights, the Risk Management Association's RMA Journal, and other business professional journals. He is the author of Analyzing Construction Contractors and its related RMA workshop. A past national chair of RMA and former Florida Chapter president, Dev serves as a member of the RMA Journal's advisory board, and an ex-officio board member of the Florida and Atlanta RMA chapters. He also serves on the advisory board of the Atlanta Chapter of the Professional Risk Managers' International Association (PRMIA), and he has consulted on credit risk issues with banks in Morocco, Egypt, and Angola through the US State Department's Financial Service Volunteer Corps (FSVC).
Conditions and covenants protect the bank’s repayment sources. For example, typical conditions include adequate and sufficient insurance coverages to protect the borrower’s earning assets, borrower certification that its taxes are current, assets are in good working order, etc. Covenants often require minimum working capital and prohibit excessive leverage.
How many covenants are too many? The course offers an answer to that question, and the answer begins with as few as possible as long as they provide an effective lockdown of the financial statements. Further, a bank’s standard loan agreements should contain sufficient and adequate conditions to protect the bank, and the bank’s standard documentation should offer several options for covenants.
- Definition and examples of Conditions and Covenants
- Negative and affirmative
- Quantitative and qualitative
- Fundamental mechanics of covenants
- Time, quality, quantity and terms
- How to use covenants to put horizontal and vertical locks on a balance sheet
- Administrative issues
- Monitoring covenant compliance
- Resolving covenant breaches
- Appropriate policy, process, and procedure
Course Level - Basic/Fundamental
Who Should Attend
- Credit Analysts
- Credit Managers
- Loan review officers
- Work-out officers
- Commercial Lenders
- Credit Risk Managers
- Chief Credit Officers
- Senior Lenders
- Senior Lending Officer
- Bank Director
- Chief Executive Officer
- Board Chairman
Why Should Attend
Conditions and covenants ensure that at inception and over the course of the credit committee, a borrower has met certain minimum requirements at inception and continues to operate within parameters that protect the Bank’s repayment sources.
Too many additional conditions and covenants are burdensome to both the borrower and the Bank. Covenants require monitoring to ensure their enforceability, and failure to respond to a covenant default weakens the Bank’s ability to enforce them later.
This session will explain how thoughtful conditions and covenants work to ensure the bank is repaid on time, in full, and as agreed