Partial participation may be funded or unfunded. If it is not funded, it is called “partial risk participation.” Partial participation is a means by which a lender can transfer its risk to another lender as part of a loan. As part of a partial capitalization stake, the existing lender determines the amount of the loan in which it wishes to participate, and then receives a deposit from a new lender up to the loan. The lender making the deposit is referred to as a “sub-participant.” For most LMA sub-participations, each party can request an increase. Parties are required to “make reasonable commercial efforts to, as soon as possible, ensure that the sub-participant (or any other person who may sanitize as a sub-participant) becomes a lender after the credit documentation.” The transfer of the loan to the participant is subject to the provisions of the credit documentation and applicable law. Under-participation agreements that allow for an increase generally provide that the existing partial participation agreement expires at the deadline for the increase — the date the agent designates as such according to the credit documentation. In a recently confidential case in which Allen-Overy LLP worked for the winning party, the Spanish courts examined for the first time the type of partial participation. The bank has submitted, by an English legal expert, experts on the fact that a partial participation of the LMA is not a transfer of the loan and none of the conditions of the partial participation that claim to reject one of the bank`s existing rights over the borrower, so that the bank remains, in accordance with English law, the lender with respect to the loan and therefore the party entitled to sue the borrower for default as part of the loan. The main drivers of the success of this type of contract on the Spanish market are that (i) the main bank can remove non-performing debt securities from its balance sheet; (ii) that international investors have acquired a credit position without having to deal directly with the debtor and without having to pay stamp duty or any other type of notarized fees related to the transaction; and (iii) allow the leading bank to transfer risks without taking a sale that could be costly and is sometimes prohibited or limited by the underlying loan agreement. (iii) Approval – Some credit contracts require the borrower`s agreement before a loan can be transferred and there is no consent.
This memorandum provides an overview of the practical problems faced by a partial participant in a credit market association (“LMA”) with a partial English-language participation agreement when the lender`s creditworthiness deteriorates. In accordance with the under-participation agreement, the parties agree that the existing lender will only make payments to the member if it has received corresponding amounts from the borrower under the loan agreement, i.e. “Disputed loan (Article 1.535 of the Spanish Civil Code): a debt is called “lgioitius” (also a disputed loan) from the date a debtor gives his formal defence against the claim of a creditor. When a disputed loan is granted to a third party, the debtor has the right to delete the debt (within nine days of the date the purchaser requests payment) by repaying the price paid by the purchaser for the acquisition of the disputed loan (as well as court costs and interest on the price from the day of payment). The loss of the guarantee on the basis that the transfer does not involve the transfer of security rights, so that the participant cannot benefit from the guarantee, especially when it comes to Spanish security rights which, in most cases, require registration or public acts. Any restriction or prohibition on the transfer of the underlying loan is violated, allowing the borrower to attempt to challenge the validity of the partial participation (vid.