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Why the bank is requiring the contingent precedent

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Bank of Davao recently approved a 10-year loan for Milo Ltd. Ryan is the sole shareholder and is 58 years old. The loan agreement includes the following contingent precedent and covenants:

Contingent Precedent: Submit a succession plan prior to the first loan disbursement.
Covenant: Maintain a minimum Total Debt: Equity of 3.0:1 throughout the life of the loan.
Covenant: Maintain a minimum Times Interest Earned of 5.0 times throughout the life of the loan

Problem 1: Explain to Ryan the reasons why the Bank is requiring the above contingent precedent and two covenants

Reference no: EM132960703

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