This is an extract of our Loan Transfers document, which we sell as part of our Debt Finance Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.
The following is a more accessble plain text extract of the PDF sample above, taken from our Debt Finance Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Risk management (i.e. exposure limits exceeded) - credit committee limits
Capital adequacy - may need to transfer loans to free up capital
Basel III: cushion amount will increase
Does not suit portfolio
Prestige of initial involvement/agency fees
May even be able to make a profit on the sale of a loan
Non-performing - distressed debt
Cut its losses when borrower in difficulty - sell at a discount
E.g. where amount of loan is very large or time available is very short
Small group sign up to the primary syndication with the intention of syndicating further.
Transfer Objectives of existing lender (EL):
Transfer non-payment risk (can just swap the risk from borrower to NL but this may not always be appropriate - e.g when trying to limit exposure in certain country)
Free up capital (ensure EL is actually put in funds)
Obligation to lend further amounts (ensure both benefit AND burden is transferred)
Issues meeting capital adequacy requirements (method of transfer must take the loan off the balance sheet)
Rescheduling risk (negotiating with borrower in financial difficulty - does EL wish to bear this risk or pass it on)
Borrower's consent - is it needed? Will borrower agree?
Relationship - EL may want to remain the borrower's lender of record
Confidentiality - EL has express contract (LMA clause 36) and common law obligations of confidentiality to the borrower.
Borrower's consent may still be needed to release confidential info even if it was not needed for the execution of the transfer.
LMA clause 36.2(b)(i) & (ii) allows disclosure where appropriate in the case of transfers
Benefit of terms - will they pass to NL?
Secured loan - how security is dealt with will differ depending on method
Buy the full version of these notes or essay plans and more in our Debt Finance Notes.