Three-year Unsecured Letter of Credit Facility Agreement

EXHIBIT 10.6


EXECUTION COPY


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THREE-YEAR UNSECURED LETTER OF CREDIT FACILITY AGREEMENT


dated as of


March 12, 2007


among


VALIDUS HOLDINGS, LTD.,


VALIDUS REINSURANCE, LTD.,


VARIOUS DESIGNATED SUBSIDIARY ACCOUNT PARTIES,


The Lenders Party Hereto,


JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,


as Sole Administrative Agent and Sole Issuing Agent,


DEUTSCHE BANK AG NEW YORK BRANCH,
as Sole Syndication Agent,


and


ING BANK N.V., LONDON BRANCH
CALYON,
THE BANK OF NEW YORK


and


WACHOVIA BANK, NATIONAL ASSOCIATION,


as Documentation Agents


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J.P. MORGAN SECURITIES INC.,
and
DEUTSCHE BANK SECURITIES INC.,
as Joint Lead Arrangers and Joint Bookrunners


TABLE OF CONTENTS


Page
----
ARTICLE I
Definitions


SECTION 1.01. Defined Terms............................................. 1 SECTION 1.02. Classification of Loans and Borrowings.................... 21 SECTION 1.03. Terms Generally........................................... 21 SECTION 1.04. Accounting Terms; GAAP.................................... 21


ARTICLE II
Letters of Credit; Loans


SECTION 2.01. Several Letters of Credit................................. 22 SECTION 2.02. Fronted Letters of Credit................................. 23 SECTION 2.03. Conditions to the Issuance of all Letters of Credit....... 25 SECTION 2.04. Letter of Credit Requests................................. 26 SECTION 2.05. Agreement to Repay Letter of Credit Drawings.............. 27 SECTION 2.06. Increased Costs........................................... 28 SECTION 2.07. Letter of Credit Expiration and Extensions................ 29 SECTION 2.08. Changes to Stated Amount.................................. 29 SECTION 2.09. Termination and Reduction of Commitments.................. 29 SECTION 2.10. Mandatory Prepayment; Cash Collateralization.............. 30 SECTION 2.11. Fees...................................................... 31 SECTION 2.12. Taxes..................................................... 32 SECTION 2.13. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.................................................. 33 SECTION 2.14. Mitigation Obligations; Replacement of Lenders............ 34 SECTION 2.15. Designated Subsidiary Account Parties..................... 36 SECTION 2.16. Loans..................................................... 36 SECTION 2.17. Loans and Borrowings...................................... 36 SECTION 2.18. Requests for Borrowings................................... 37 SECTION 2.19. Funding of Borrowings..................................... 38 SECTION 2.20. Interest Elections........................................ 38 SECTION 2.21. Repayment of Loans; Evidence of Debt...................... 39 SECTION 2.22. Voluntary Prepayment of Loans............................. 40 SECTION 2.23. Interest.................................................. 41 SECTION 2.24. Alternate Rate of Interest................................ 42 SECTION 2.25. Break Funding Payments.................................... 42


ARTICLE III
Representations and Warranties


SECTION 3.01. Corporate Status.......................................... 43 SECTION 3.02. Corporate Power and Authority............................. 43 SECTION 3.03. No Contravention of Agreements or Organizational
Documents................................................. 43


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SECTION 3.04. Litigation and Environmental Matters...................... 43 SECTION 3.05. Use of Proceeds; Use of Letters of Credit; Margin
Regulations............................................... 44 SECTION 3.06. Approvals................................................. 44 SECTION 3.07. Investment Company Act.................................... 44 SECTION 3.08. True and Complete Disclosure; Projections and
Assumptions............................................... 44 SECTION 3.09. Financial Condition....................................... 45 SECTION 3.10. Tax Returns and Payments.................................. 45 SECTION 3.11. Compliance with ERISA..................................... 45 SECTION 3.12. Subsidiaries.............................................. 46 SECTION 3.13. Capitalization............................................ 46 SECTION 3.14. Indebtedness.............................................. 46 SECTION 3.15. Compliance with Statutes and Agreements................... 46 SECTION 3.16. Insurance Licenses........................................ 47 SECTION 3.17. Insurance Business........................................ 47 SECTION 3.18. Properties; Liens; and Insurance.......................... 47 SECTION 3.19. Solvency.................................................. 48


ARTICLE IV
Conditions


SECTION 4.01. Effective Date............................................ 48 SECTION 4.02. Each Credit Event......................................... 50


ARTICLE V
Affirmative Covenants


SECTION 5.01. Information Covenants..................................... 51 SECTION 5.02. Books, Records and Inspections............................ 54 SECTION 5.03. Insurance................................................. 54 SECTION 5.04. Payment of Taxes and other Obligations.................... 54 SECTION 5.05. Maintenance of Existence; Conduct of Business............. 54 SECTION 5.06. Compliance with Statutes, etc............................. 55 SECTION 5.07. ERISA..................................................... 55 SECTION 5.08. Maintenance of Property................................... 56 SECTION 5.09. Maintenance of Licenses and Permits....................... 56 SECTION 5.10. Further Assurances........................................ 56


ARTICLE VI
Negative Covenants


SECTION 6.01. Changes in Business or Organizational Documents........... 56 SECTION 6.02. Consolidations, Mergers and Sales of Assets............... 57 SECTION 6.03. Liens..................................................... 58 SECTION 6.04. Indebtedness.............................................. 60 SECTION 6.05. Sale and Lease-Back Transactions.......................... 61 SECTION 6.06. Issuance of Stock......................................... 61 SECTION 6.07. Dissolution............................................... 61


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SECTION 6.08. Restricted Payments....................................... 61 SECTION 6.09. Transactions with Affiliates.............................. 62 SECTION 6.10. Maximum Leverage Ratio.................................... 62 SECTION 6.11. Minimum Consolidated Net Worth............................ 62 SECTION 6.12. Limitation on Certain Restrictions on Subsidiaries........ 62 SECTION 6.13. Private Act............................................... 63 SECTION 6.14. Claims Paying Ratings..................................... 63 SECTION 6.15. End of Fiscal Years; Fiscal Quarters...................... 63 SECTION 6.16. Investments, Loans, Advances and Guarantees............... 63


ARTICLE VII
Events of Default


SECTION 7.01. Payments.................................................. 64 SECTION 7.02. Representations, etc...................................... 64 SECTION 7.03. Covenants................................................. 64 SECTION 7.04. Default under other Agreements............................ 64 SECTION 7.05. Bankruptcy, etc........................................... 65 SECTION 7.06. ERISA..................................................... 65 SECTION 7.07. Judgments................................................. 65 SECTION 7.08. Insurance Licenses........................................ 65 SECTION 7.09. Change of Control......................................... 66 SECTION 7.10. Company Guaranty.......................................... 66


ARTICLE VIII
The Agents


SECTION 8.01. Appointment............................................... 67 SECTION 8.02. Agents in their Individual Capacities..................... 67 SECTION 8.03. Exculpatory Provisions.................................... 67 SECTION 8.04. Reliance.................................................. 67 SECTION 8.05. Delegation of Duties...................................... 68 SECTION 8.06. Resignation............................................... 68 SECTION 8.07. Non-Reliance.............................................. 68 SECTION 8.08. Syndication Agent, Documentation Agents and Joint Lead
Arrangers and Joint Bookrunners........................... 68


ARTICLE IX
Company Guaranty


SECTION 9.01. The Company Guaranty...................................... 69 SECTION 9.02. Bankruptcy................................................ 69 SECTION 9.03. Nature of Liability....................................... 69 SECTION 9.04. Independent Obligation.................................... 70 SECTION 9.05. Authorization............................................. 70 SECTION 9.06. Reliance.................................................. 71 SECTION 9.07. Subordination............................................. 71


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SECTION 9.08. Waiver.................................................... 71


ARTICLE X
Miscellaneous


SECTION 10.01. Notices................................................... 72 SECTION 10.02. Waivers; Amendments....................................... 73 SECTION 10.03. Expenses; Indemnity; Damage Waiver........................ 74 SECTION 10.04. Successors and Assigns.................................... 75 SECTION 10.05. Survival.................................................. 78 SECTION 10.06. Counterparts; Integration; Effectiveness.................. 79 SECTION 10.07. Severability.............................................. 79 SECTION 10.08. Right of Setoff........................................... 79 SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of
Process................................................... 79 SECTION 10.10. Waiver of Jury Trial...................................... 80 SECTION 10.11. Headings.................................................. 81 SECTION 10.12. Confidentiality........................................... 81 SECTION 10.13. Interest Rate Limitation.................................. 81 SECTION 10.14. USA Patriot Act........................................... 82 SECTION 10.15. Termination of Existing Revolving Facility................ 82


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SCHEDULES:


Commitment Schedule Schedule 1.01 -- Permitted Investors Schedule 2.15 -- Designated Subsidiary Account Parties Schedule 3.12 -- Subsidiaries Schedule 3.13 -- Capitalization Schedule 3.14 -- Existing Indebtedness Schedule 3.16 -- Insurance Licenses Schedule 6.03 -- Existing Liens Schedule 6.09 -- Existing Affiliate Transactions Schedule 6.12 -- Existing Intercompany Agreements and Arrangements Schedule 6.16 -- Existing Investments


EXHIBITS:


Exhibit A -- Form of Assignment and Assumption Exhibit B -- Form of Borrowing Request Exhibit C -- Form of DSAP Assumption Agreement Exhibit D -- Form of Note Exhibit E -- Form of Interest Election Request Exhibit F -- Form of Letter of Credit Request Exhibit G-1 -- Opinion of Account Parties' Special New York Counsel Exhibit G-2 -- Opinion of Account Parties' Special Bermuda Counsel Exhibit H -- Form of Officer's Certificate Exhibit I -- Additional LC Documentation


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THREE-YEAR UNSECURED LETTER OF CREDIT FACILITY AGREEMENT dated as of March 12, 2007 among VALIDUS HOLDINGS, LTD., a holding company organized under the laws of Bermuda (the "Company"), VALIDUS REINSURANCE, LTD., an insurance and reinsurance company organized under the laws of Bermuda and a wholly-owned subsidiary of the Company ("Validus Re"), the other Designated Subsidiary Account Parties (as hereinafter defined) from time to time party hereto, the lenders from time to time party hereto (each, a "Lender" and, collectively, the "Lenders"), JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Agent, Deutsche Bank AG New York Branch, as Syndication Agent, and ING Bank N.V., London Branch, Calyon, The Bank of New York and Wachovia Bank, National Association, as Documentation Agents. Unless otherwise defined herein, all capitalized terms used herein and defined in Section 1.01 are used herein as so defined.


The parties hereto hereby agree as follows:


ARTICLE I


Definitions


SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:


"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.


"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.


"Account Parties" means the Company and each Designated Subsidiary Account Party.


"Administrative Agent" means JPMorgan Chase Bank, National Association (and each person appointed as a successor thereto pursuant to Article VIII), in its capacity as administrative agent for the Lenders hereunder.


"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.


"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.


"Agents" means, collectively, the Administrative Agent, the Syndication Agent and the Issuing Agent.


"Agreement" means this Three-Year Unsecured Letter of Credit Facility Agreement, as modified, supplemented, amended, restated (including any amendment and restatement hereof), extended or renewed from time to time.


"Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.


"Applicable Insurance Regulatory Authority" means, when used with respect to any Regulated Insurance Company, (x) the insurance department or similar administrative authority or agency located in each state or jurisdiction (foreign or domestic) in which such Regulated Insurance Company is domiciled or (y) to the extent asserting regulatory jurisdiction over such Regulated Insurance Company, the insurance department, authority or agency in each state or jurisdiction (foreign or domestic) in which such Regulated Insurance Company is licensed, and shall include any Federal or national insurance regulatory department, authority or agency that may be created and that asserts insurance regulatory jurisdiction over such Regulated Insurance Company.


"Applicable Percentage" means, with respect to any Lender, the percentage of the Total Commitment represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.


"Applicable Rate" means, on any date, with respect to the Commitment Fee, the Eurodollar Loans, the Utilization Increase, the ABR Loans or the Letter of Credit Fee, as the case may be, the applicable rate per annum set forth below under the caption "Commitment Fee Rate", "Eurodollar Spread", "Utilization Fee Rate", "ABR Spread" or "Letter of Credit Fee", as the case may be, based upon the Leverage Ratio applicable on such date:


Commitment Eurodollar Utilization Letter of
Leverage Ratio Fee Rate Spread Increase ABR Spread Credit Fee
----------------------- ---------- ---------- ----------- ---------- ---------- Category 1 or = 0.20x and or = 0.25x 0.150% 0.750% 0.125% 0.00% 0.750%


For purposes of the foregoing,


(i) if at any time the Company fails to deliver the Financials on or before the date the Financials are due pursuant to Section 5.01, Category 3 shall be deemed applicable for the period commencing five (5) Business Days after such required date of delivery and ending on the date which is five (5) Business Days after the Financials are actually delivered, after which the Category shall be determined in accordance with the table above as applicable;


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(ii) adjustments, if any, to the Category then in effect shall be effective five (5) Business Days after the Administrative Agent has received the applicable Financials (it being understood and agreed that each change in Category shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change); and


(iii) notwithstanding the foregoing, Category 1 shall be deemed to be applicable until the Administrative Agent's receipt of the applicable Financials for the Company's fiscal quarter ending on or about March 31, 2007 and adjustments to the Category then in effect shall thereafter be effected in accordance with the preceding paragraphs.


"Approved Fund" has the meaning provided in Section 10.04(b).


"Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.


"Authorized Officer" means, as to any Person, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Secretary, or the Chief Financial Officer or Finance Director of such Person or any other officer of such Person duly authorized by such Person to act on behalf of such Person hereunder.


"Bankruptcy Code" has the meaning provided in Section 7.05.


"Bermuda Companies Law" means the Companies Act 1981 of Bermuda and other relevant Bermuda law.


"Board" means the Board of Governors of the Federal Reserve System of the United States of America.


"Borrowing" means Loans of the same Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.


"Borrowing Request" means a request by the Company for a Borrowing in accordance with Section 2.18.


"Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in the London interbank market.


"Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be


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classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.


"Capital Markets Product" means, as to any Person, any security, commodity, derivative transaction or other financial or similar product purchased, sold or entered into by such Person for the purpose of a third-party undertaking or assuming one or more risks otherwise assumed by such Person or entered into by such Person for the purpose of managing one or more risks otherwise assumed by such Person or other agreements or arrangements entered into by such Person designed to transfer credit risk from one party to another, including (i) any structured insurance product, catastrophe bond, rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, commodity hedge, equity or equity index swap, equity or equity index option, bond option, interest rate option or hedge, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or swap transaction, credit protection transaction, credit swap, credit default swap (including single default, single-name, basket and first-to-default swaps), credit default option, equity default swap, total return swap, credit-linked notes, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sellback transaction, securities lending transaction, weather index transaction, emissions allowance transaction, or forward purchase or sale of a security, commodity or other financial instrument or interest (including any option with respect to any of these transactions), (ii) any transaction which is a type of transaction that is similar to any transaction referred to in clause (i) above that is currently, or in the future becomes, recurrently entered into in the financial markets, (iii) any combination of the transactions referred to in clauses (i) and (ii) above and (iv) any master agreement relating to any of the transactions referred to in clauses (i), (ii) or (iii) above.


"Cash Equivalents" means, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof, the District of Columbia or any foreign jurisdiction having, capital, surplus and undivided profits aggregating in excess of $200,000,000, with maturities of not more than one year from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's and in each case maturing not more than one year after the date of acquisition by such Person, and (v) investments in "money market funds" within the meaning of Rule 2a-7 of the Investment Company Act of 1940, as amended, substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above.


"Change in Law" means (a) the adoption or effectiveness of any law, rule or regulation, order, guideline or request or any change therein after the date of this Agreement, (b) any change adopted or effective in the interpretation, administration or application of any


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law, rule or regulation, order, guideline or request or any change therein by any Governmental Authority, central bank or comparable agency after the date of this Agreement or (c) compliance by any Lender or the Issuing Agent (or, for purposes of Section 2.06, by any lending office of such Lender or by such Lender's or the Issuing Agent's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority, central bank or comparable agency made or issued after the date of this Agreement.


"Change of Control" means (a) Validus Re or any other Account Party ceasing to be a Wholly-Owned Subsidiary of the Company, (b) prior to an IPO, the failure by Permitted Investors to collectively own, directly or indirectly, beneficially and of record, Equity Interests in the Company representing at least a majority of each of the aggregate ordinary voting power and the aggregate equity value represented by the issued and outstanding Equity Interests in the Company, (c) after an IPO, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the SEC thereunder as in effect on the date hereof) other than Permitted Investors, of Equity Interests representing more than 25% of either the aggregate ordinary voting power or the aggregate equity value represented by the issued and outstanding Equity Interests in the Company, (d) the occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company or Permitted Investors nor (ii) appointed by director ...