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Credit Agreement Terms That Protect a Lender

Although the court held that a lender breached a $750 million revolving credit facility by failing to lend, the lender was protected from liability by a term in the credit facility disallowing consequential damages. In re Lyondell Chemical Co., No. 17-4375-DLC, 2018 WL 565272 (S.D.N.Y. Jan. 24, 2018) the terms of a specific credit agreement provision were found to insulate this lender from a consequential damage claim.  Such clauses are enforceable under New York law except to the extent that they cover claims for gross negligence or intentional wrongdoing.   However, the clause did not bar restitutionary damages, and thus the lender had to return the $12 million commitment fee paid by the borrower. The lesson to be learned is a well drafted agreement is still the best practice for the commercial lender.  Many of the commercially significant loan transactions are governed by New York law, so this case is important in California as a choice of law issue.

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