Sub Participation Agreement Precedent
In summary, if the licensor is not yet subject to formal insolvency proceedings in the United Kingdom (administration or liquidation), the licensor`s ability to carry out transactions in the normal course of business is not restricted. It follows that, where the subcontractor deals with the licensor`s ability to fulfil its obligations, the participant may in general `increase` its interest in the loan and become a direct lender or require that the loan be transferred to a third party, so that the participant can enter into a new under-participation agreement with the third party in respect of the same credit agreement. This memorandum provides an overview of the practical problems that a sub-party faces under a Loan Market Association (“LMA”) sub-participation agreement under an English law sub-participation agreement, when the licensor`s solvency deteriorates. The Spanish court agreed that the loan had not been awarded and that the order had been applied. The Tribunal was seriously affected by the fact that the lead bank is the only body that can exercise a right against the borrower, which made it impossible to reorganize the under-participation. In a recent, confidential case where Allen & Overy LLP acted for the winning party, Spanish courts examined for the first time the nature of a sub-participation. The bank has submitted an expert opinion from an English legal expert that LMA`s under-holding is not an assignment of the loan and that none of the terms of the sub-equity require the assignment of any of the bank`s existing rights to the borrower, so that, in accordance with Uk law, the bank remains the lender in respect of the loan and that, therefore, the party entitled to bring an action against the borrower for non-payment of the loan. Financial players in the troubled market in Spain often use LMA`s sub-participation agreement. However, `partial participation` is not a concept traditionally recognised by Spanish law. This led borrowers to oppose enforcement and argue that such an agreement should be re-elected as an assignment of receivables. Such a characterization would be detrimental to investors in bad loans.
However, Spanish legislation does not specifically regulate this type of transaction. Hence the risk of a re-characterization according to Spanish law. Recently, debtors are beginning to argue that an under-participation is actually an assignment of receivables. The consequences of an assignment of receivables are as follows: (i) Qualified lenders – the credit agreement may include contractual restrictions for eligible lenders. These restrictions are often linked to tax definitions and many buyback funds find it difficult to take a direct stake in a loan. Under-participation is a means by which a lender can transfer its risk to another lender as part of a loan. The application of English law to LMA`s partial participation agreements has increased considerably in Spain since the financial crisis and, in particular, in the market for doubtful debt securities. (iii) Consent – some credit agreements require the borrower`s agreement before a loan can be transferred, the agreement of which may not take place..