Novation Assignment (rare) Sub-participations Risk-participation
Documents Common law position Common law position Agreement btw EL and NL Agreement btw EL and NL
Novation agreement btw Deed of Assignment LMA standard form LMA standard form
“EL” – existing ALL parties Btw EL and NL only Only relevant re fully-drawn Fee paid by EL to NL
lender S.136 LPA 1925 -> notice to B in writing loans! Otherwise there’s no point.
LMA position LMA position Fee from EL to NL if margin on
“NL” – new Transfer Certificate ALM version loan is not sufficient to attract NL
lender (Sch.5) EL + NL execute; countersigned by Agent
B consents to it by B will know about it bcs Agent must inform
signing LMA B
EL, NL and Agent =
signatories
B will know about it bcs
Agent must inform B
EL put in funds? Yes Common law: Yes, re drawn down amts Not immediately (only if B
Yes, re drawn down amts as at the transfer NL can also be put under obligation defaults on loan)
date to match EL’s future lending in
Does not work if RCF or undrawn tranches sub-participation agreement
of term loan NL will then provide further funds
Future lending obligations cannot be but only once B requests them
assigned
LMA:
Yes, for all amts drawn down as at transfer
date
NL will assume direct obligation to fund
future drawdowns
Do All rights and obligations Common law: NL assumes B repayment risk re Risk remains on EL’s b/ce
risks/obligation pass to NL; exception: Non-payment risk re drawn down amts will drawn down amts as obligation of sheet
s pass? CL.24.3(c) – B cannot be be transferred to NL EL to pass payments of interest + EL is not put in funds up-
required to gross-up Obligations cannot be transferred so EL will principal to NL (subject to B front + so no transfer by EL
retain obligation to make future advances making such repayments to EL in of repayment risk
Does not work if RCF or undrawn tranches first place) Transfer of risk from
of term loan IF EL has future lending commercial point bcs EL
obligations, NL is usually required expects to be put in funds if
ALM position: hybrid assignment to match those future lending B defaults
assignment- rights & obligations pass to NL obligations in the agreement EL = exposed to NL risk
Removed from EL’s b/ce sheet BUT: no effective risk transfer re EL retains rescheduling risk
Documents Common law position Common law position Agreement btw EL and NL Agreement btw EL and NL
Novation agreement btw Deed of Assignment LMA standard form LMA standard form
“EL” – existing ALL parties Btw EL and NL only Only relevant re fully-drawn Fee paid by EL to NL
lender S.136 LPA 1925 -> notice to B in writing loans! Otherwise there’s no point.
LMA position LMA position Fee from EL to NL if margin on
“NL” – new Transfer Certificate ALM version loan is not sufficient to attract NL
lender (Sch.5) EL + NL execute; countersigned by Agent
B consents to it by B will know about it bcs Agent must inform
signing LMA B
EL, NL and Agent =
signatories
B will know about it bcs
Agent must inform B
EL put in funds? Yes Common law: Yes, re drawn down amts Not immediately (only if B
Yes, re drawn down amts as at the transfer NL can also be put under obligation defaults on loan)
date to match EL’s future lending in
Does not work if RCF or undrawn tranches sub-participation agreement
of term loan NL will then provide further funds
Future lending obligations cannot be but only once B requests them
assigned
LMA:
Yes, for all amts drawn down as at transfer
date
NL will assume direct obligation to fund
future drawdowns
Do All rights and obligations Common law: NL assumes B repayment risk re Risk remains on EL’s b/ce
risks/obligation pass to NL; exception: Non-payment risk re drawn down amts will drawn down amts as obligation of sheet
s pass? CL.24.3(c) – B cannot be be transferred to NL EL to pass payments of interest + EL is not put in funds up-
required to gross-up Obligations cannot be transferred so EL will principal to NL (subject to B front + so no transfer by EL
retain obligation to make future advances making such repayments to EL in of repayment risk
Does not work if RCF or undrawn tranches first place) Transfer of risk from
of term loan IF EL has future lending commercial point bcs EL
obligations, NL is usually required expects to be put in funds if
ALM position: hybrid assignment to match those future lending B defaults
assignment- rights & obligations pass to NL obligations in the agreement EL = exposed to NL risk
Removed from EL’s b/ce sheet BUT: no effective risk transfer re EL retains rescheduling risk
