Loan Sub-Participation Agreement

The main drivers of the success of this type of contract in the Spanish market are that (i) the first bank can remove bad loans from its balance sheet; (ii) international investors have obtained a credit position without having to deal directly with the debtor and without having to pay stamp duty or other notary fees for the transaction; and (iii) allows the lead bank to transfer risk without incurring an assignment that could be costly and sometimes prohibited or limited by the underlying loan agreement. 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 accordance with the terms of the partial participation agreement, the parties agree that the existing lender only pays the subcontractor if it has received equivalent amounts from the borrower under the loan agreement, i.e. some participants require the licensor to provide an ancillary guarantee on the proceeds of the loan in favour of an agent as collateral. In the event that the licensor initiates formal insolvency proceedings, the agent would retain the proceeds of the loan outside the licensor`s estate and in trust for the participant. The terms of such a trust would differ from case to case, but such an agreement would have the effect of significantly reducing the licensor`s risk of insolvency. In the case of an entry, the participant deposits a deposit with the lead bank in the amount of his participation and the lead bank undertakes to pay the participant sums equal to the participant`s share of the lead bank`s revenues by the borrower, if and as soon as they have been received. The lead bank does not transfer or explain part of the initial loan to the participant. The participant is only a creditor of the lead bank and not the borrower, and if the lead bank becomes insolvent, the participant is an uninsured creditor of the lead bank.

In the absence of a contractual relationship between the sub-debtor and the borrower under the underlying loan, the borrower would continue to make payments to the insolvent concessionaire. Such payments, combined with the underlying loan, would therefore generally include an asset in the estate of the insolvent licensor and would not constitute a claim of the sub-party on a basis other than that of the uninsured creditor. 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 cancelled later (whereas an administrator`s actions could still be challenged by creditors or liquidator at the request of the court). . . .