How to prepare a contract diligence findings report for Loan Agreements

Prepare a borrower-side loan diligence report by establishing the operative document package, testing its terms against the borrower’s proposed transaction and operating needs, and recording material findings with source evidence, impact, uncertainty, and an accountable owner. Review economics, borrowing conditions, covenants, defaults, and consent requirements together rather than as isolated clauses. The deliverable should give decision-makers a prioritized findings table, identify missing evidence, and specify what must be resolved before relying on the facility or proceeding with the transaction.

When to use this workflow

Use this workflow when borrower counsel or an in-house finance legal team assesses an existing facility before an acquisition, refinancing, additional borrowing, restructuring, or internal compliance review. Focus the report on whether the facility supports the intended action, requires lender involvement, or presents unresolved liquidity or compliance exposure—not a clause-by-clause abstract.

This guide concerns US commercial finance. Apply the actual governing law and distinguish borrower, guarantor, and subsidiary obligations. The narrow New York statutory points below do not resolve consumer lending, usury, collateral perfection, bankruptcy effects, or enforceability elsewhere. Scope those issues separately when material; the workflow recommendations are not legal requirements.

What you need

Collect the executed agreement, amendments, restatements, waivers, consents, fee letters, guarantees, security documents, incorporated schedules, and effectiveness evidence. Request relevant notices, compliance certificates, borrowing requests, and lender correspondence.

Obtain a borrower fact pack covering debt, outstanding loans and letters of credit, entity structure, financial statements, covenant calculations, and the proposed transaction. Identify its amount, timing, funding sources, and participating entities. Without these facts, counsel may extract a restriction but cannot reliably assess its consequence.

Agree on the reporting cutoff, audience, materiality criteria, and internal comparison baseline. A borrower-approved checklist or negotiation playbook is the team’s work product, not evidence of market practice. Identify finance and treasury contacts responsible for validating calculations and payment assumptions.

Use the template

Use the Loan Agreements — Contract diligence findings report template below. You can copy this table into your working document or spreadsheet. Separate issues requiring different decisions or owners.

Assign stable document IDs and cite the operative version, clause, and page or paragraph. For calculations, identify the workbook version and cell. Preserve a short excerpt or precise paraphrase; distinguish confirmed terms, reported facts, and assumptions.

Explain priority through borrower exposure. A draw condition blocking imminent funding may outrank a remote prepayment cost. Keep uncertainty separate from severity: missing evidence can be consequential without proving a breach. Record an accountable owner and decision target, distinguishing internal targets from sourced contractual deadlines. Use linked supporting notes when a row cannot accommodate definitions or calculations.

Step by step

1. Establish the operative document package

Inventory documents before interpreting provisions. Reconcile document dates, signatures, effectiveness conditions, and surviving attachments. Determine whether amendments replace individual provisions, substitute agreement text, or preserve schedules. Request evidence of subsequent amendments through the reporting cutoff.

Chord Energy’s seventh amendment illustrates the continuity issue: section 2 substitutes Exhibit A while preserving existing exhibits and schedules except Annex I, subject to effectiveness conditions. Exhibit A alone is therefore incomplete for that review. This is negotiated wording, not a general rule. Chord amendment, § 2.

Record: supporting document IDs, missing incorporated materials, and outstanding effectiveness evidence. Do not treat a readable restatement as a complete package.

2. Define the borrower decision and review boundaries

Translate instructions into answerable questions: Can the borrower fund the acquisition? Does the subsidiary structure require consent? Will refinancing trigger cash costs? Identify relevant facilities, entities, and dates, and distinguish legal diligence from collateral or tax work assigned elsewhere.

Check governing law without equating its selection with enforceability. New York General Obligations Law § 5-1401 permits qualifying transactions totaling at least $250,000 to select New York law without a reasonable relationship to the state, subject to personal-services, household-services, and UCC exclusions. It is not a forum-selection rule. NY GOL § 5-1401.

Record: the borrower action, affected entity, review boundary, comparison baseline, and specialist questions. Explain priority by reference to the intended decision.

3. Test economics and actual borrowing constraints

Read pricing and availability together. Review benchmark mechanics, margin grids, floors, default interest, fees, tax gross-up, increased costs, breakage, mandatory prepayment, and maturity. Ask treasury to quantify material cash effects using identified assumptions.

Distinguish commitments, borrowing base, utilization, sublimits, and drawing conditions. The Chord amendment separately states its borrowing base and elected revolving commitments; neither figure alone establishes available borrowing capacity. Chord amendment, §§ 3.1–3.2.

Check whether representations must be repeated and whether a Default prevents borrowing even before acceleration. Identify documentary prerequisites to the planned draw.

Record: the constraint, source provisions, calculation inputs, validation status, and funding consequence. Report capacity as unresolved if material utilization or borrowing-base information is missing.

4. Evaluate covenants against the proposed conduct

Map the transaction to debt, lien, investment, acquisition, disposition, distribution, and subsidiary restrictions. Follow definitions, exceptions, shared baskets, conditions, and cross-references. Determine whether the proposed basket use competes with another planned action.

For financial covenants, capture the formula, consolidation perimeter, exclusions, add-back caps, accounting conventions, testing dates, and certificate requirements. Applied Materials’ section 5.03 illustrates a quarter-end interest coverage test while Loan Exposure or a Commitment remains. The defined components must accompany the threshold; it is not a general borrower requirement. Applied Materials agreement, § 5.03.

Record: the restriction, dependent definitions, missing inputs, and finance’s validation of headroom or basket usage. Keep legal interpretation distinct from financial-model validation.

5. Map defaults, notice, and consent requirements

Trace each material issue to its default provision, including materiality, notice, and cure conditions. Separate payment default, covenant default, cross-default, and cross-acceleration. Distinguish drawing restrictions from discretionary or automatic remedies.

Do not import a cure period from a neighboring clause. Applied Materials section 6.01(a) distinguishes principal nonpayment from other payment failures; section 6.01(c) provides a notice-triggered remedial period for specified failures. Neither establishes a universal cure right. Applied Materials agreement, § 6.01.

If relief is needed, check amendment and waiver provisions for required approvals, affected-lender protections, and conditions. For notice-dependent timing, examine permitted methods and receipt evidence. Chord’s electronic-notice provisions do not make sending an email sufficient by itself. Chord amendment, Exhibit A, § 12.01.

Record: trigger, prerequisites, approval route, response, and unresolved timing inputs. Verify Business Day definitions and delivery facts before calculating deadlines.

6. Distinguish findings from assumptions and proposed fixes

Classify entries as confirmed terms or deviations, fact-dependent potential issues, or missing evidence. Explain liquidity, operational, or strategic consequences rather than assigning unsupported numerical scores. Consolidate duplicate findings while preserving all relevant sources.

A draft amendment does not establish an effective change. Where New York law applies, § 15-301(1) requires an executory change to an agreement prohibiting oral modification to be written and signed by the party against whom enforcement is sought or its agent. Conduct, waiver, and estoppel questions require additional analysis. NY GOL § 15-301.

Record: evidence status, reasoning, remediation, and owner. Distinguish a requested consent from approved and effective relief; do not label a deviation “off-market” without separate support.

7. Assemble and challenge the decision report

Lead with funding blockers, required consents, and material cash consequences. Follow with the findings table, reviewed-document inventory, cutoff, and limitations. Keep routine obligations subordinate unless they affect the immediate decision.

Have a second reviewer trace material findings to operative sources. Ask finance to confirm calculations and business owners to confirm assumptions. Reconcile the executive summary with detailed rows: an unresolved consent issue cannot coexist with unconditional clearance.

Record: the decision, approving person, conditions to reliance, and internal target. State whether each issue is resolved, accepted by an authorized decision-maker, or assigned for further work. Acceptance of risk is not evidence of contractual compliance.

Worked example

Fictional scenario: Alder Quay Components LLC proposes a $14 million acquisition funded partly through its revolver. All parties, documents, amounts, and provisions below are invented.

Counsel receives executed agreement LA-01, effective amendment AM-02, finance worksheet FC-03, and unsigned waiver draft W-04. LA-01 conditions permitted acquisitions on no continuing Default and satisfaction of a pro forma financial test. AM-02 increases commitments but preserves existing schedules. Schedule 7.01, identifying permitted existing debt, is missing. FC-03 claims compliance using an unexplained earnings adjustment. Treasury reports possible late financial reporting but supplies neither delivery evidence nor effective relief.

These entries change the decision from unconditional approval to a defined evidence-and-analysis gate. F-01 needs reconciliation against the contractual formula, not merely a signed worksheet. F-02 identifies missing evidence, not undisclosed debt. F-03 requires delivery and default analysis before determining whether relief is necessary. None establishes that the acquisition is prohibited or cleared, and the report should not imply that these three entries complete all drawing-condition review.

Common mistakes

• Reviewing only the latest clean agreement. Reconstruct amendment continuity and surviving schedules before assessing completeness.
• Equating commitments with available cash. Check utilization, applicable limits, representations, and draw conditions; assign missing inputs to treasury.
• Extracting a ratio without its definitions. Preserve accounting conventions, adjustments, testing mechanics, and supporting model references.
• Calling missing evidence a breach. Identify the unavailable material and the conclusion it prevents; investigate performance separately.
• Treating proposed relief as effective. Verify required approvals and effectiveness conditions, not just the existence of a waiver draft.

Final quality check

• Every material finding traces to an operative document and precise provision.
• Amendments, surviving schedules, and effectiveness evidence are reconciled or expressly outstanding.
• Borrower, guarantor, and subsidiary responsibilities are distinguished.
• Financial conclusions identify validated inputs and unresolved assumptions.
• Default analysis preserves clause-specific notice, cure, and remedy dependencies.
• Consent recommendations identify the contractual approval route.
• The summary matches the findings; every material open issue has an owner, target, and consequence for reliance.

Complete the workflow with DecoverAI

DecoverAI is the Legal Intelligence Platform for litigation and transactions. Its due diligence capabilities include bulk document classification to organize the package and prioritize human review; tabular review supports work across documents. In Word, contract review supports selecting the represented party and giving deal-specific instructions, with findings that quote clauses, rank severity, locate text, and identify missing language as not present. Counsel retains responsibility for source verification, calculations, and legal conclusions. To assess this reporting workflow, book a demo.

Frequently asked questions

Is the report a covenant compliance certificate?

No. It records diligence findings and evidence. Check the agreement’s separate certificate requirements, including content, signatory, timing, and delivery. The report may identify issues requiring resolution before certification.

Should every clause appear in the findings table?

No. Include material findings, decision dependencies, and consequential gaps. Retain supporting extraction and a review-coverage record separately so the report remains useful without obscuring omitted work.

How should an unsigned amendment be treated?

Identify it as proposed or unverified, not an established operative amendment. Request execution and effectiveness evidence and analyze the current operative language. Escalate any claimed effectiveness based on other facts for separate assessment.

Can several facilities share one report?

Yes, but preserve facility and obligor identifiers. Examine cross-default links and overlapping restrictions without assuming common definitions or covenant regimes. A combined report must not hide a facility-specific consent or funding condition.

Sources

• New York General Obligations Law § 5-1401
• New York General Obligations Law § 15-301
• Applied Materials credit agreement, September 25, 2025
• Chord Energy seventh amendment and Exhibit A, November 3, 2025

Scope: October 13, 2026. Filed agreements illustrate negotiated wording, not general law, current borrower compliance, or market standards.

This guide is general information about legal workflows, not legal advice for any matter. It was drafted and reviewed with AI assistance. The worked example is fictional. Contract rights and procedure depend on the governing law, the actual wording, and the facts, so check the cited sources and the rules that apply in your jurisdiction before relying on it.