Question 1: Banco  Flamenco et Sangria (BFS) was the lead manager of a multicurrency  syndicated loan to a Chilean multinational, Azteca Copper (AC), four  years ago

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Question 1: Banco  Flamenco et Sangria (BFS) was the lead manager of a multicurrency  syndicated loan to a Chilean multinational, Azteca Copper (AC), four  years ago. As Agent Bank for the syndicate, BSF has asked for your advice on the following matters. 

1.i)   AC has requested that the financial ratio covenants be changed so that  the D/E ratio currently applicable under the SLA at 1.5: 1 is amended  to 2:1. AC has offered BFS all its FX business in Singapore and Hong  Kong, if it puts pressure on other syndicate banks to accept the change; 

2.ii)   AC has also informed BFS that although it will continue to make  payment of interest due under the SLA to the syndicate through an  account of BFS designated by the SLA, it requires BFS to withhold  payment of interest on US$ loans to any syndicate bank which refuses to  agree the change to the D/E ratio covenant; 

3.iii)   BFS has also been informed by BFS’s Singapore office that AC is in  breach of its obligations under derivatives contracts with a Singaporean  bank; 

4.iv)   Bank Mandarin (BM), a Singaporean Bank, which is a member of the  syndicate has discovered that information concerning demand for Chilean  copper in SE Asia contained in the information memorandum (IM) sent to  all banks in the syndicate by BFS based on information provided to it by  AC, prior to the syndicated loan agreement (SLA) being signed, was  completely inaccurate. BFS is concerned about its exposure to syndicate  banks. 

5.v)   AC has also announced that it will be engaging in exploring for copper  in Argentina and that the $400 million cost of the exploration is to be  financed by sale and leaseback arrangements with two US Banks. 

The SLA is governed by English law and includes market standard covenants and terms.