09 Жов Sub Participation Agreement Lma
Given the derivative nature of the LMA form of the equity agreement – the underlying loan is owned by the licensor – there is a potential risk that the transaction will be executed if the transfer or increase took place on the eve of insolvency. An increase during a moratorium (i.e. the period after the appointment of an administrator during which creditors acting against the debtor are effectively frozen) would in practice require the cooperation of the administrator and would therefore probably not be reversed at a later date (although the actions of an administrator are always challenged by creditors or a liquidator upon request). While the bank succeeded, the litigation resulted in a delay in implementation, which could have been avoided if the under-participation between the lead bank and the sub-participants had been confidential, as is usually the case. (iv) Taxes – depending on the tax residence of the borrower and the subcontractor, an increase, if the subcontractor becomes a direct lender, may result in unfavorable tax treatment of the interest on the credit agreement, including withholding taxes, etc. Some credit agreements offer a gross amount for such a holdback, but the amount of gross withholding is often limited. However, the potential for tax inefficiency is weighed against the potential credit and performance risk that the licensor does not comply with the payment obligations of the sub-equity agreement, which may be further increased by the insolvency of the licensor. While an administrator and liquidator have specific powers to set aside transactions on the basis of preference and undervaluation, as well as those that defy creditors, only a liquidator is empowered to refuse dependent contracts in general. Therefore, in the absence of such a circumstance, a failure by a director to work under a sub-participation agreement would constitute an infringement and create a claim for damages by the party. However, the possibility of imposing such a claim would be subject to the moratorium resulting from the appointment of the director.
It is obvious that there were a number of reasons why a purchase was initially structured as a stake. Such reasons need to be re-examined in the context of a subsequent increase. These issues include: however, Spanish law 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: in today`s troubled global financial markets, the focus is once again on counterparty credit risk, as was the case after the collapse of Lehman Brothers a decade ago. The European secondary credit market uses a standard “credit participation” form to transfer the borrower risk and profitability of a loan to the secondary market. Several types of credit holdings are published by the London-based Loan Market Association (LMA). For investors holding interests under the LMA Funded Participation, in addition to the credit risk of the underlying borrower, the credit risk of the lender selling the loan on the market poses a particular problem.
The seller is referred to as the “grantor” of the participation. In cases where it is either prejudicial or impractical for the sub-party to become a credit lender, it may be possible to (i) order an increase in the under-participation in favour of the third party and (ii) enter into a new under-participation agreement with the third party. Such a scheme would have the effect of transferring the economic advantages of the loan without any of the above disadvantages being borne. . . .