In addition, the participant may have the right to prevent any substantial economic change in the credit contract. If the lender gives such a veto to the participant, the participant may block a complete restructuring of the facility, regardless of the amount of the loan share. Since the participation agreement must be in accordance with the terms of the credit agreement, it is advisable for the lender to carefully analyze the terms of the credit agreement to ensure that there are no inconsistent provisions. The holdings can add value to the lender, especially in a distressed situation, by creating a market of economic interest, while the lender can remain the record owner of the loan to maintain its relationship with its client. The administrator manages the loan facility on behalf of the group of lenders. As a general rule, the representative is responsible for all formal communications between the lenders and the borrower, as well as the payment of the proceeds of the loan. All guarantees that provide the loan facility are generally guaranteed by the borrower granting interest on the real value to the management agent (or another lender designated as a security guarantor) for the benefit of the lenders. Although the terms “participation” and “unionion” are often used in a synonymous manner, there are significant legal and practical differences between participation and syndicated loans. It is therefore important for a lender to be aware of the differences between these two credit structures in order to make an informed business decision about the structure most suited to the lender`s interests. This article provides a guide for lenders on the benefits and risks of participating in credit and syndicated loans. However, participation can be quite heavy for the lender.
It is understandable that participation agreements are quite complex, given the rights involved, and that they require in-depth negotiations. There is also an advantage to information of being a lender in a syndicated loan, unlike a subscriber. Unlike an equityhold, each lender pays its share of the loan separately and therefore has the right to obtain, prior to its creation, all information about the borrower`s finances and activities that help the lender determine whether the borrower presents an acceptable risk on the basis of the lender`s own criteria. In addition, non-agent lenders may require that the credit contract require that all essential information provided by the borrower to the administrator under the credit contract be provided to all members of the credit group, either directly by the borrower or through the administrative officer. When arreverising a particular credit agreement, lenders should assess the different credit structures and the benefits and risks associated with them. Financing from several lenders offers lenders the opportunity to share credit risks with other lenders and diversify their loan portfolios using other credit options. Loan holdings allow a lender to participate in a credit contract without interrupting credit control and announcing its presence to the borrower and the global credit market. Syndicated loans offer other lenders direct rights against the borrower and are structured to facilitate the management and use of large or complex loans. In order to ensure that a lender can structure a credit facility to meet its needs and properly protect its rights, it is of the utmost importance that a lender be aware of the most important differences between equity and credit systems, especially when the underlying credit is in trouble.
A potential risk for a non-agent lender in a syndicated credit is the limitation of the lender`s ability to control the administrator`s remedial action following a default.