Mario Christodoulou, Accountancy Age, Friday 18 June 2010 at 10:59:00

Banking body is not aware of the common use of restrictive clauses

Restrictive banking covenants, which restrict auditor choice, are not?prevalent market practice? the UK?s chief banking representative group hassaid.

The BriClauses tish Bankers Association (BBA) said it is not aware of thewidespread use of restrictive covenants, inserted into credit agreements,forcing companies to choose a Big Four auditor.

?We are not aware of it being prevalent market practice for banks or othercorporate advisers to advise or insist upon clients using a Big Four firm,? thebody said.

?In the case of established borrowers, lenders typically work with theborrower?s existing auditors, which often will be one of the Big Four althoughthis is by no means always the case.?

On Thursday Accountancy Age revealed the use of the clauses, long rumouredbut rarely produced, in US credit agreements and one Spanish example quoted inthe blog of Jeremy Newman, global head of BDO.

?The parent company, although not legally obliged to do so, undertakes tosubmit its individual and consolidated annual accounts to an annual audit by oneof the four most solvent and internationally renowned audit firms (the BigFour),? the clause read.

A BBA spokesman said in the case of established borrowers, lenders typicallyworked with the borrower?s existing auditors.

?The situation differs slightly in the case of leveraged loans, where theloan agreement may stipulate that an auditor of internationally recognisedstanding be used,? the spokesman said.

?Any such contractual obligation should be transparent.?

Further reading:

Restrictivebank covenants keep the Big Four on top