Documentation negotiation

Documentation is where deals die or cost you money later. Every representation is a potential repurchase obligation. Every covenant is a potential breach. Every remedy is a potential acceleration. This is where sophisticated negotiators earn their value.

Representations and warranties

Reps and warranties define what you are promising about the assets, your business, and your compliance. Every rep is a potential repurchase obligation or event of default.

Types of qualifiers to negotiate

Qualifier	What It Does	Example Language
Knowledge	Limits rep to what you actually know	”To originator’s knowledge…”
Materiality	Excludes minor breaches	”No material adverse change…”
Survival period	Limits how long rep can be enforced	”This representation shall survive for 24 months from the purchase date”
Repurchase cap	Limits total repurchase exposure	”Aggregate repurchases shall not exceed 5% of original pool balance”

Reps to push back on

Absolute reps about borrower representations. You can only rep what you know, not what the borrower told you was true.

Problematic language:

“Originator represents that all information provided by each borrower is true and correct.”

Better language:

“Originator represents that, to its knowledge after reasonable diligence consistent with its underwriting standards, the information provided by each borrower does not contain any material misrepresentation.”

Regulatory compliance reps. Rep that you complied with applicable law, not that the loan is in compliance with all laws everywhere.

Problematic language:

“Each loan complies with all applicable federal, state, and local laws and regulations.”

Better language:

“Each loan was originated in compliance with originator’s compliance policies, which are designed to comply with applicable federal and state lending laws.”

Material adverse change reps. “No material adverse change” in your business since some date needs an objective definition.

Problematic language:

“There has been no material adverse change in Originator’s business since December 31, 2024.”

Better language:

“There has been no Material Adverse Change since December 31, 2024. ‘Material Adverse Change’ means (i) a decline in tangible net worth below $XX million, (ii) cumulative net losses on the portfolio exceeding X%, or (iii) the occurrence of a Bankruptcy Event.”

Negotiation tactics for reps

Start with knowledge qualifiers.

Effective language:

“We request that all representations regarding borrower-provided information be qualified by ‘to originator’s knowledge after reasonable diligence.’ We cannot rep to facts that depend on third-party truthfulness.”

Negotiate survival periods.

Effective language:

“We request that representations regarding asset characteristics survive for 24 months from the purchase date, after which repurchase obligations terminate for any breach not previously identified.”

Cap aggregate repurchase exposure.

Effective language:

“We request that aggregate repurchases be capped at 5% of original pool balance for representation breaches. This provides meaningful protection while limiting our tail risk.”

Remedies and enforcement

What happens when things go wrong matters as much as what triggers the problem. Negotiating remedies protects you from precipitous action.

Cure periods

Breach Type	Market Standard	Target
Financial covenant breach	30-60 days	60-90 days
Payment breach	5-10 business days	10 business days
Reporting breach	10-30 days	30 days
Representation breach	30 days	45-60 days

Negotiation approach:

Effective language:

“We request 60 days to cure financial covenant breaches and 30 days to cure reporting or compliance breaches. This allows time for remediation without triggering acceleration.”

Cure rights

Beyond cure periods, negotiate specific cure mechanisms.

Equity cure rights. Ability to inject capital to cure financial covenants.

Effective language:

“Originator shall have the right to cure any breach of the Tangible Net Worth covenant by contributing additional capital within 30 days of written notice of breach. Such contribution shall be counted toward Tangible Net Worth for purposes of determining compliance.”

Repayment cure. Ability to repay to cure over-advance situations.

Effective language:

“In the event that the Borrowing Base is less than outstanding advances, Originator shall have 5 business days to cure by repayment of the excess rather than immediate acceleration.”

Notice requirements

Ensure you receive notice before remedies are exercised.

Effective language:

“Lender shall provide written notice of any Event of Default and shall not exercise any remedy until 10 business days following such notice, except in the case of a Payment Default which shall require 5 business days notice.”

Step-in rights before acceleration

Capital provider services the portfolio rather than accelerating.

Effective language:

“Upon an Event of Default, prior to exercising acceleration, Lender may elect to exercise step-in rights and assume servicing of the portfolio for a period of not less than 90 days. During such period, Lender shall evaluate whether to pursue acceleration or an alternative resolution.”

Wind-down versus acceleration

Push for managed wind-down as the default remedy rather than acceleration.

Effective language:

“Upon an Event of Default, unless Lender elects acceleration in its sole discretion, the facility shall enter an orderly wind-down period of not less than 12 months, during which Originator shall continue to service the portfolio and no new purchases shall be permitted.”

This gives you time to find replacement capital rather than being forced into a fire sale.

Amendment provisions

Amendment provisions determine how the facility evolves over time. Poorly drafted amendment provisions can lock you into unfavorable terms or give the capital provider unilateral power to change economics.

Review the amendment provisions carefully. Some facilities give the capital provider unilateral rights to change:

Eligibility criteria
Advance rates
Triggers and covenants
Reporting requirements

What to negotiate:

Term Category	Required Consent
Economic terms (spread, fees, advance rate)	Mutual consent always
Eligibility criteria	Mutual consent or 60 days notice
Triggers and covenants	Mutual consent always
Reporting requirements	30 days notice minimum
Administrative matters	May be unilateral

Effective language:

“Any modification to (i) pricing or fee terms, (ii) advance rate calculations, (iii) eligibility criteria, or (iv) covenant or trigger levels shall require the written consent of both Lender and Borrower.”

Market flex and timing

In syndicated deals, market flex provisions allow underwriters to change terms based on market conditions.

What to negotiate:

Cap the range of flex (e.g., up to 25 bps on spread, 2 points on OID)
Require notice before flex is exercised
Establish a floor below which consent is required

Effective language:

“Underwriter may exercise market flex to adjust pricing by up to 25 basis points and original issue discount by up to 200 basis points without Issuer consent. Any adjustment beyond these limits requires Issuer written consent.”

Supermajority thresholds in syndicated deals

Change Type	Typical Consent Threshold
Changes affecting all lenders (release of collateral)	100% consent
Changes affecting economic terms	66-75% consent
Changes to covenants	Majority consent
Administrative changes	Agent discretion

Negotiation approach:

Effective language:

“Changes to pricing, advance rates, or fees shall require consent of lenders holding at least 75% of commitments. Changes to covenants or triggers shall require consent of lenders holding at least 66% of commitments.”

Servicing provisions

If you are the servicer, servicing provisions in the documentation define your obligations and limitations.

Servicing standard

Problematic language:

“Servicer shall service the loans in accordance with the highest standard of care in the industry.”

Better language:

“Servicer shall service the loans in accordance with accepted servicing practices for loans of similar type and shall apply the same care as it applies to similar loans serviced for its own account.”

Modification authority

Ensure you have authority to modify loans within defined parameters.

Effective language:

“Servicer may, without Lender consent, modify loans where (i) the modification does not reduce the principal balance by more than 10%, (ii) does not extend the maturity by more than 12 months, and (iii) does not reduce the interest rate by more than 200 basis points.”

Servicing termination

Negotiate conditions for servicer termination and transition.

Effective language:

“Servicer may not be terminated except upon (i) an unremedied Servicer Event of Default, (ii) 90 days prior written notice following two consecutive months of Servicing Standard breaches, or (iii) mutual agreement. Upon termination, Servicer shall have 90 days to transition servicing and shall be compensated for transition costs up to $XX.”

Documentation review process

Your role vs. your lawyer’s role

Who Reviews	What They Review
Your lawyer	Legal enforceability, structural issues, standard terms
You	Commercial terms, advance rate mechanics, waterfall, covenants, all definitions

Read these sections cover to cover:

Definitions section (every defined term affects other provisions)
Advance rate and borrowing base mechanics
Waterfall (priority of payments)
Triggers and covenants
Events of default
Amendment provisions

Common documentation pitfalls

Definitional traps. The defined term “Eligible Loan” may incorporate requirements that are not in the eligibility criteria section.

Cross-references. “Subject to Section 5.2” may fundamentally change the meaning of a provision.

Basket interactions. Multiple baskets (e.g., geographic concentration, FICO concentration, product concentration) may overlap in ways that restrict your flexibility more than any single basket.

Materiality definitions. “Material” and “Material Adverse Effect” may be defined differently in different sections.