The Law of Multibank Financing

THE LAW OF MULTI-BANK FINANCING
Syndicated Loans and the Secondary

Loan Market
THE LAW OF
MULTI-BANK
FINANCING
Syndicated Loans and
the Secondary Loan Market
Agasha Mugasha
LLB (Hons), DipLP, LLM PhD
Professor of Law, University of Essex
Great Clarendon Street, Oxford ox2 6dp

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Agasha Mugasha, 2007
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1 3 5 7 9 10 8 6 4 2
PREFACE
This book uses the designation multi-bank financing to encompass different

transactions where a group of banks acts in concert to provide credit to one borrower. It focuses on syndicated loans and the secondary loan practices of loan
trading, credit derivatives, and collateralized debt obligations as practised in the
London international financial market and governed by English law. Over the
years, many of the non-bank financial institutions have joined this activity and
this book notes that development.
The book is written to appeal to different legal audiences. The only assumption
made by the author is that the reader is interested in the law as well as its context.
There is also moderate coverage of some significant law or practices encountered
in other major jurisdictions. Chapter 6 is exclusively on US case law on loan participation and is included for useful analogies. The chapter sheds light on the US
courts approach to bank documents and the reasons behind some of the contractual provisions commonly encountered in such documents. While there is generally more case law in the United States, however, reference to it is minimized in
this book due to the different social and economic underpinnings.
Syndicated lending is quick, efficient, and versatile. It results in the geographical
and institutional sharing of credit and risk, thus delivering an internationally integrated financial market. Innovations and expansion continue in syndicated loans,
contributing to further development of the relevant law. The involvement of nonbank financial institutions in this market has led to different methodologies in the
lending markets as well as litigation. Most notably, there is increasing convergence
of capital, loan, and equity markets in a trend that is set to continue. Loan markets
routinely borrow techniques from bond and equity markets and vice versa.
The documentation of syndicated loans generally depends on market practice
and the commercial terms of the deal at hand. Market practice largely derives
from the conventions of the London market, which are generally shaped by financial history in its past and modern forms. Considering the number and size of
transactions in London alone, there is sparse case law that is directly on syndicated
loans in particular, loan agreements in general, or indeed all multi-bank financing
transactions. For the most part, the practitioners apply general principles of law in
developing the law and practice of multi-bank financing. The courts, mostly by
applying the Anglo-American classical notion of freedom of contract, have
adopted an approach that facilitates the growth of trade and financial structures
v
Preface
and practices. They have therefore been proactive in developing multi-bank
financing and international banking in general by interpreting contractual documents in a manner that generally conforms to market practice. The regulators
have equally played their part by creating an enabling environment for the further
growth of these transactions.
The financial industry is dynamic, and so is the world economy. There is bound
to be further growth in multi-bank financing transactions and the law and regulations that govern them. Further developments to, and indeed alternative interpretations of, the views presented in this book, are therefore inevitable and healthy.
Agasha Mugasha
Brentwood, Essex
1 May 2007
vi
ACKNOWLEDGEMENTS
I am truly grateful to the multitude of individuals and institutions that assisted in

different ways and made the publication of this book possible. A selection stands
out and deserves special mention. None of them, however, is responsible for any
errors in this book, for which I am solely responsible.
This book was written in the course of my employment and benefited from the
study leave scheme in the Department of Law at the University of Essex. It also
received significant support in the form of direct funding from the British Academy
and the UK Arts and Humanities Research Council (AHRC). The research also
benefited from the generosity of Osgoode Hall Law School of York University in
Canada, and the American University Washington College of Law in the United
States, where I held short appointments as a visiting scholar in the course of writing the book. I am grateful to these institutions as well as to my colleagues and the
administrative staff there.
This book would be lacking some essential parts if the following individuals in the
United Kingdom (and indirectly their organizations) had not been generous with
information: Mark Campbell at Clifford Chance, Graham Penn at Sidley Austin,
Richard Calnan at Norton Rose, Tom Price and Sally Moore at Markit, Petra
Hofer at Dealogic, Daren Kemp at Sidley Austin, two anonymous reviewers commissioned by OUP, and Caroline Checkley, the Law Librarian at the University of
Essex. The Loan Markets Association also kindly gave me access to its two recommended forms of primary documents.
Outside the United Kingdom, the Loan Syndications and Trading Association in
New York (through Elliott Ganz) was very generous at all times. I also obtained
useful information from Michael Avidon in New York; Daniel Bradlow, Michael
Swetye and Frank Byamugisha in Washington, DC; Clint Calder in Toronto;
Edwin Kikonyogo, Jeff Midzuk, Eric Le Grange and Graeme Tucker in
Johannesburg; Martin Bandeebire in Kampala; and my former Essex LLM students Atiq Imdad Ali, Subir Chakraborty, Lingzhi Fu, Gozde Hascelik, Lee
Mason, Zhang Min, Henry Nampandu, Boseda Olofinmakin, Aurelie Payet,
Qian Qian Wang, Shujin Yang, and Li Zhe.
Professor Benjamin Geva introduced me to syndicated loans and his continuing
support is priceless, together with that of Professors John F Dolan and JeanGabriel Castel; John C Lancaster, Pearl Rozenberg, Kevin McGuinness, William
Kanyesigye, Betty and John Nganwa, Maude Bishop, and my South African
vii
Acknowledgements
friends and academic colleagues, Mr Justice Frans Malan, Jopie Pretorius, Angela
Itzikowitz, Charl Hugo, and Sarel Du Toit.
I needed permission from McGill-Queens University Press, which permission
was kindly given, for me to publish this book with Oxford University Press because
the book is on a similar topic to my earlier book, The Law of Multi-bank Financing
(Syndications and Participations), which was published in Canada in 1997. I publicly acknowledge my gratitude to McGill-Queens University Press. It bears
emphasis, though, that the two books are very different in substance even though
inevitably I do express the same ideas or occasionally use the same text.
Finally, I am truly grateful to my family and friends who have always been there
for me and have thus contributed immeasurably to this work.
Agasha Mugasha
Brentwood, Essex
1 May 2007
viii
CONTENTSSUMMARY
Table of Cases
Table of Legislation
Table of European Directives
Table of International Treaties and Conventions
List of Tables
List of Figures
List of Abbreviations
1. Multi-Bank Financing: What It is and is Not
2. Multi-Bank Financing: Who Uses It, Where, and Why?
3. Arranging Syndicated Loans, Sub-participations,
and Loan Participations
4. The Nature of Credit Facilities used in Syndicated
Loans and Secondary Loan Markets
5. Syndicated Loans: Legal Relationships Between
the Borrower and Lenders, and among Syndicate Lenders
6. Loan Participations: Legal Relationships Between
the Lead Bank and Participants, Participants and
Borrower, and Among Participants
7. Loan Sub-participations: Legal Relationships
Between the Lead Bank and Sub-participant, and
Borrower and Sub-participant
8. The Secondary Market for Syndicated Loans:
Loan Trading, Credit Derivatives, and
Collateralized Debt Obligations
9. The Agent Bank in Syndicated Loans
and Loan Participations
10. Syndicated Loans and Borrower Insolvency:
Winding-up and Workout Procedures
11. The Regulation of Syndicated Loans and the
Secondary Loan Market Practices
12. Conclusion
ix
xxv
xxvii
xli
xliii
xlv
xlvi
xlvii
1
61
99
175
203
271
341
353
403
439
471
513
ContentsSummary
Appendix 1: Multicurrency Term Facility Agreement (Miranda
Projects/The Prospero Group/Ariel Bank Ltd)
Appendix 2: LSTA Sample Par/Near Par Participation Agreement
Appendix 3: LSTA Purchase and Sale Agreement for Distressed Trades
Appendix 4: LSTA Assignment and Assumption
Appendix 5: LSTA Model Transfer Provision
527
585
596
622
627
Index
631
CONTENTS
Table of Cases
Table of Legislation
Table of European Directives
Table of International Treaties and Conventions
List of Tables
List of Figures
List of Abbreviations
xxv
xxvii
xli
xliii
xlv
xlvi
xlvii
1. Multi-Bank Financing: What It is and is Not

I. Introduction
1.01
II. The Dynamism of Multi-Bank Financing

A.
B.
C.
D.
Increasing Sophistication of Client Needs

Impact of Economic Cycles
Different Types of Financial Institutions and Methods
Impact of Changing Regulations
III. Designation of Multi-Bank Financing

A. Increasing Participation of Other Financial Institutions
IV. Description of Multi-Bank Financing Transactions

A. Primary Transactions
1. The Syndicated Loan
a. Common varieties of syndicated loans
b. Niche-market syndicated loans
2. Club Deal Loans
B. Secondary Loan Market Practices
1. Loan Participation and Loan Sub-participation: Early
Differences between New York and London Practices
2. Loan Sub-participations
3. Loan Participations
a. General description
b. Differentiation between types of loan participation
4. Transferable Loan Facilitiesa Historical Note
a. Transferable loan certificates
b. Transferable loan instruments
c. Current practices
5. Loan Trading
6. Credit Derivatives
7. Collateralized Debt Obligations
xi
1.05
1.06
1.07
1.08
1.09
1.10
1.13
1.14
1.15
1.15
1.17
1.26
1.31
1.35
1.37
1.38
1.40
1.40
1.41
1.50
1.51
1.52
1.53
1.54
1.55
1.58
Contents
V. Multi-Bank Financing Contrasted with Similar
Financing Techniques
A. Introduction
B. Multi-Bank Financing Contrasted with Equity
Syndications and Participations
C. Multi-Bank Financing Contrasted with Capital
Market Methods
D. Multi-Bank Financing Contrasted with International
Bonds/Eurobonds
E. Multi-Bank Financing Contrasted with
Commercial Paper Programmes
F. Multi-Bank Financing Contrasted with Securitization
1. Traditional Sale Structure
2. Sale of Assets to a Trustee of a Receivables Trust
VI. Conclusion
1.61
1.61
1.63
1.64
1.65
1.68
1.70
1.72
1.73
1.76
2. Multi-Bank Financing: Who Uses It, Where, and Why?

I. Introduction
2.01
II. The PartiesWho Uses Multi-Bank Financing?

A. The Borrowers
1. Who are the Borrowers?
2. Regulation of the Borrowers
B. The Lenders and Investors
1. Banks
a. Different types of banks
b. Regulation of banks
2. Non-Bank Financial Institutions
a. Hedge funds
b. Pension funds
c. Insurance companies
d. Collateralized debt obligations
e. Building societies
f. Equity funds
g. Mutual funds and prime rate funds
h. Finance companies
i. Islamic finance
j. Vulture funds
k. International Finance Corporation
l. Credit unions (cooperative credit associations)
III. Components of the Financial MarketWhere

Multi-Bank Financing Occurs
A. Domestic Market
B. Foreign Market
xii
2.02
2.02
2.02
2.06
2.07
2.08
2.08
2.12
2.15
2.16
2.19
2.20
2.21
2.22
2.23
2.24
2.25
2.26
2.27
2.28
2.29
2.30
2.31
2.32
Contents
C. International Financial Marketthe Euromarket
1. The Concept and Origins of the Eurocurrency
2. The Development of the Eurodollar Market
3. Characteristics and Advantages of the Euromarket
a. Regional markets
2.33
2.34
2.35
2.36
2.38
IV. The RationaleWhy Parties Use Multi-Bank Financing
2.39
2.40
2.40
A. The Borrower
1. Advantages of Syndicated Loans
2. Advantages of Loan Trading and Other
Secondary Loan Market Methods
B. The Banks
1. Advantages of Syndicated Loans
a. The diversification of the risk of non-payment
b. Complying with regulations
c. Earning arrangement fees
d. Increasing prestige and publicity
e. Developing profitable relationships
2. Reasons for Secondary Loan Market Practices
a. Note on credit derivatives
b. Sale considerations
c. Purchase considerations
V. Conclusion
2.43
2.44
2.45
2.46
2.47
2.48
2.49
2.50
2.51
2.52
2.53
2.62
2.68
3. Arranging Syndicated Loans, Sub-participations, and Loan Participations

I. Introduction
3.01
II. Arranging Syndicated Loans

A. Procedure in Brief
1. Key Roles
2. Effect of Electronization on Documentation
3. Self-arranged Syndicated Loans
B. Detailed Procedure
1. Originating the Loan
a. The offer and the mandate
b. Types of offer
c. Legal effect of the mandate
d. Arrangers potential liability to the borrower
2. Negotiating the Loan
3. Marketing the Loan
a. Finalizing the syndicate group
b. Preparing the information package or memorandum
c. Dealing with professional advisers
d. Liability for inaccurate or erroneous information
4. Action in Contract or Tort?
5. Arrangers Potential Liability to the Participants
xiii
3.03
3.03
3.06
3.10
3.11
3.14
3.14
3.16
3.17
3.25
3.40
3.48
3.50
3.52
3.53
3.56
3.57
3.63
3.64
Contents
6. Misrepresentation
a. Effective misrepresentation
b. Materiality
c. Inducement and reliance
7. Heads of ActionSpecific Categories of Misrepresentation
a. Fraudulent misrepresentation
b. Negligent misrepresentation
c. Innocent misrepresentation
d. Statutory misrepresentation
e. Overseas statutory regimes
8. Negligence
9. Breach of Fiduciary Duty
10. Obviating Liability for Misinformation or Non-information
a. Exemption or disclaimer clauses
b. Due diligence
c. Involving the participants
d. Indemnity from the borrower
III. Arranging Loan Participations and Sub-participations

A. Arranging a Loan Sub-Participation
B. Loan Participation Procedures
C. Liability Arising from the Selling Process
IV. Conclusion
3.67
3.68
3.71
3.72
3.76
3.77
3.80
3.100
3.102
3.113
3.114
3.115
3.132
3.132
3.139
3.140
3.141
3.142
3.142
3.143
3.147
3.148
4. Nature of Credit Facilities Used in Syndicated Loans and

Secondary Loan Markets
I. Introduction
4.01
II. Direct Loans
4.03
4.04
4.07
A. Money Loans
B. Overdraft Facilities
III. Documentary Credits

A. Overview of Letters of Credit
B. Syndications of Documentary Credits
1. One Bank Issues a Documentary Credit
for its Own Account
2. One Bank Issues a Documentary
Credit on behalf of the Syndicate
3. Each Bank Issues its Own Documentary Credit
C. Participations of Documentary Credits
1. Introduction
2. Participations Granted by the Issuing Bank
3. Participations Granted by the Confirming Bank
4. Participations Granted by the Nominated Bank
xiv
4.09
4.09
4.11
4.13
4.14
4.15
4.17
4.17
4.21
4.23
4.26
Contents
IV. Bank Guarantees and Standby Letters of Credit
A. Introduction
B. Syndications of Bank Guarantees
1. Motives Behind Syndications of Bank Guarantees
2. The Syndication Procedure
3. Specific Types And Purposes of Bank Guarantees
a. Tender guarantee
b. Advance payment or repayment guarantee
c. Performance guarantee
C. Syndications of Direct Pay Standby Letters of Credit
D. Participations of Bank Guarantees and Standby Credits
V. Bankers Acceptances
A. Bankers Acceptances as a Funding Facility
B. Syndications of Bankers Acceptances
C. Participations in Bankers Acceptances
1. Risk Participations
2. Generic Participations
3. Observations
VI. Conclusion
4.29
4.29
4.33
4.33
4.34
4.38
4.39
4.40
4.41
4.45
4.47
4.51
4.51
4.56
4.58
4.59
4.60
4.62
4.64
5. Syndicated Loans: Legal Relationships Between the Borrower

and Lenders, and among Syndicate Lenders
I. Introduction
5.01
II. The Legal Nature of the Syndication Arrangement

A. Importance of Determining the Legal Nature
B. Legal Nature of the Syndication Arrangement
1. Separate Loans
2. Joint Tenancy or Joint Venture
3. Partnership
III. Contractual Provisions in a Syndicated Loan Agreement

A. Key Determinants of Loan Classifications and Terminology
B. Key Features of Euroloan Lending
1. The Concept of Matched Funding
2. The Concept of Net Lending (Yield Protection)
C. Legal Relations between the Lenders and the Borrower
1. Definitions
2. The Facility
3. Purpose and Utilization of the Facility
4. Payments, Repayment and Prepayment
a. Payment of interest
b. Repayment of principal
c. Prepayment and cancellation
xv
5.06
5.06
5.07
5.08
5.14
5.15
5.16
5.19
5.20
5.20
5.21
5.23
5.24
5.25
5.26
5.28
5.29
5.35
5.37
Contents
d. Payment of fees, costs, and expenses

e. Payment of taxes
5. Security, Guarantees, and Insurance
a. Security
b. Guarantees, indemnity, and support arrangements
c. Insurance
6. Conditions Precedent
7. Representations and Warranties
a. Pari passu
b. Material adverse change clause
8. Undertakings
a. Informational undertakings
b. Financial covenants
c. General undertakings
9. Amendments, Waivers, and Consents
10. Default
a. Events of default
b. Problems with cross-default clauses
c. Consequences of default
11. Change of Parties and Transfers of Loan Interests
a. Methods of transferring loan interests
b. Conditions of assignment or transfer
c. Change of lenders
12. Governing Law, Jurisdiction, and Service of Process
13. Legal Opinions
14. Miscellaneous Provisions
D. Legal Relationships Among the Lenders
1. Sharing Payments
a. The Iranian crisis
b. The Argentinian crisis
c. Sovereign debt-restructuring
d. Double-dipping
e. Cross-jurisdictional and cross-currency set-off
f. Other aspects
2. Majority Voting
E. Legal Relationships Between the Lenders and the Agent Bank
IV. Conclusion
5.41
5.42
5.43
5.43
5.47
5.51
5.52
5.56
5.58
5.60
5.63
5.64
5.65
5.69
5.70
5.75
5.76
5.79
5.83
5.94
5.95
5.96
5.97
5.99
5.103
5.105
5.106
5.106
5.109
5.110
5.112
5.113
5.114
5.115
5.116
5.124
5.125
6. Loan Participations: Legal Relationships Between the

Lead Bank and Participants, Participants and Borrower, and
Among Participants
I. Introduction
6.01
xvi
Contents
II. Lead Bank and Participant Relationship
A. The Legal Nature of the Participation Arrangement
1. Analysis
a. Sale theory: assignor-assignee relationship
b. Debt theory: creditor-debtor relationship
c. Ownership in common or tenancy in common
d. Partnership or joint venture
e. Trust
f. Agency
B. Economic Consequences of Characterization
1. Borrowers Insolvency
a. Set-off by the lead bank
b. Set-off by the participant
c. Entitlement to collateral and other collections
2. Lead Banks Insolvency
a. Set-off by the borrower
b. Set-off and other claims by the participant
3. Participants Insolvency
C. Form of the Participation Agreement
1. Oral Participation Agreements
2. Written Participation Agreements
a. Conclusion of the contract
b. Precedence of documents
c. Admissibility of extrinsic evidence
D. Contents of the Participation Agreement:
Contractual Rights and Duties
1. Credit Information
a. Allocation of the credit risk
2. Initial and Subsequent Funding
a. Initial funding
b. Subsequent funding
c. Failure to fund the loan
3. Receipts, Collections, and Expenses
a. Lead banks duty to collect the loan
b. Sharing and appropriation of collections
c. Apportionment of costs and expenses
4. Servicing the Loan
a. The servicing function
b. Termination of servicing
5. Modifications and Waiver
6. Default and Enforcement
7. Risks and Standard of Care
8. Assignment of the Loan
a. Conditions precedent
xvii
6.08
6.10
6.12
6.13
6.21
6.26
6.27
6.32
6.37
6.41
6.42
6.43
6.46
6.49
6.51
6.52
6.53
6.68
6.74
6.74
6.76
6.79
6.80
6.82
6.87
6.91
6.94
6.95
6.96
6.97
6.98
6.99
6.100
6.102
6.104
6.108
6.108
6.110
6.111
6.115
6.120
6.122
6.125
6.127
Contents
10. Breach and Non-Performance
a. Elevation
b. Subrogation
11. Miscellaneous Provisions
12. Implied Terms
a. Presumptions about participation agreements
b. Fiduciary obligations
c. Duty of good faith and fair dealing
d. Duty to use reasonable care
e. Observations
6.128
6.129
6.130
6.131
6.132
6.133
6.135
6.136
6.140
6.141
III. Participant-Borrower Relationship
6.142
IV. Participant-Participant Relationship
6.144
V. Conclusion
6.152
7. Loan Sub-participations: Legal Relationships Between the

Lead Bank and Sub-participant, and Borrower and Sub-participant
I. Introduction
A. Description of Sub-participation
1. Funded Sub-participation
2. Risk Sub-participation
II. Legal Relationships in Sub-participation Arrangement

A. Legal Nature of a Sub-participation Arrangement
1. The Lead BankSub-participant Relationship
2. The Sub-participant and the Borrower
B. The Sub-participation Agreement
1. Form of the Agreement
2. Delivery of Documents
3. Confidentiality
4. Payment of the Sub-participation
5. Distributions
a. Distributions in cash
b. Distributions not in cash
c. Shortfall in distributions of interest or fees
d. Contingent receipt of payment
a. Representations and warranties by the lead bank
and sub-participant
b. Representations and warranties by the lead bank
c. Exclusion of warranties and representations
7. Confirmations by the Sub-participant
8. Undertakings by the Lead Bank
9. Administration of the Sub-participation
xviii
7.01
7.03
7.04
7.05
7.06
7.06
7.06
7.10
7.11
7.11
7.12
7.13
7.14
7.15
7.16
7.17
7.18
7.19
7.20
7.20
7.21
7.22
7.23
7.24
7.25
Contents
10.
11.
12.
13.
14.
7.26
7.27
7.28
7.29
7.30
Indemnities
Transfers
Governing Law
Jurisdiction
Other provisions
8. The Secondary Market For Syndicated Loans: Loan Trading,

Credit Derivatives, and Collateralized Debt Obligations
I. Introduction
8.01
II. Loan Trading
8.03
8.04
8.06
A. Past Obstacles to Loan Trading

B. The Legal Framework for Loan Trading
1. Methods of Transferring Property InterestsCommon Law
Principles
a. Novation
b. Assignment
c. Declaration of trust
d. Charges
C. Reasons for Loan Trading
D. Development of the Systems for Loan Trading
1. Objective Pricing
2. Loan Rating
3. Loan Identification
4. Industry Body Support
5. Financial Institution Involvement
6. Use of the Internet
E. Legal and Regulatory Issues
1. Loan Trading Contractsthe Courts Approach
2. Transfer of Loan Interests
3. Transfer in Breach of Express ProhibitionRequirement
for Consent
4. Confidentiality
5. Set-off
6. Prudential Concerns
III. Credit Derivatives

A. Description of Credit Derivatives
B. Advantages of Credit Derivatives
C. Types of Credit Derivatives
1. Credit Default Swap
2. CDS Squared
3. Total Return Swap and Total Rate of Return Swap
4. Credit Linked Note
5. Repackaged Note
xix
8.12
8.12
8.16
8.34
8.42
8.44
8.45
8.46
8.47
8.48
8.49
8.50
8.51
8.54
8.53
8.55
8.56
8.57
8.58
8.59
8.60
8.60
8.61
8.63
8.64
8.67
8.68
8.71
8.73
Contents
D. Legal and Regulatory Issues
1. Legal Issues
a. Mis-selling of products
b. Enforceability and interpretation of the contractual
documents
c. Transfer of property interests
2. Regulatory Issues
a. Provisioning for operational risk
b. Are credit derivatives insurance business or insurance
contracts?
c. Is a credit derivative a gaming or wagering contract?
IV. Collateralized Debt Obligations

A. A Description of CDOs
B. Why CDOs are Appealing
C. Types of CDOs
1. Underlying Assets
2. Arbitrage versus Balance Sheet CDOs
3. Cash versus Synthetic CDOs
4. Static versus Managed CDOs
5. Cashflow versus Market Value CDOs
D. Legal Issues
1. Jurisdiction of the SPV
2. Transfer of Assets
a. Effective transfer
b. True sale opinions
c. Consent requirements
3. Set-off
4. Lender Liability
V. Conclusion
8.74
8.74
8.75
8.76
8.79
8.80
8.80
8.82
8.85
8.86
8.86
8.87
8.88
8.89
8.90
8.93
8.97
8.99
8.101
8.101
8.102
8.102
8.103
8.104
8.105
8.106
8.107
9. The Agent Bank in Syndicated Loans and Loan Participations

I. Introduction
9.01
II. General Approach to the Agent Banks Legal Status and

Functions
A. True Agent or Special Agent Debate
1. Agent Bank as a True Agent
a. True agent with fiduciary duties
b. True agent disclaiming fiduciary duties
2. Agent Bank as a Special Agent
B. Analysis
1. Meaning of the Word Agent
2. The Duties of the Agent Bank
xx
9.04
9.06
9.07
9.07
9.08
9.09
9.10
9.11
9.12
Contents
3. The Authority of the Agent Bank
4. Observations
III. Contents of the Agency Clause

A. General Principles of Law
1. Duty to Exercise Due Care and Skill
2. Implied DutiesFiduciary Duties
3. Authority of the Agent Bank
a. Express actual authority
b. Implied actual authority
B. Specific Aspects of the Agency Clause
1. Appointment and Authorization
a. Irrevocability of the appointment
b. Delegation to the agent bank
2. Duties of the Agent Bank
a. Checking that the conditions precedent
have been satisfied
b. Receiving utilization requests
c. Administering interest periods
d. Administering interest rates and mandatory costs
e. Dealing with market disruption events
f. Administering foreign exchange transactions
and multi-currency facilities
g. Calculating limits for availability, tranches,
fronting banks, and swinglines
h. Calculating and requesting fees and general expenses
i. Acting as a conduit for information
j. Monitoring financial covenants
k. Acting as a conduit for payments
l. Checking certain types of information
m. Transfers of lenders commitments
and changes to borrowers and guarantors
n. Waivers, amendments, and consent
o. Handling events of default and organizing banking
meetings
3. Protections Given to the Agent Bank
4. Conflict of Interests
5. Additional Remuneration
6. Use of Confidential Information
7. Reimbursement and Indemnification of the Agent
8. Termination and Replacement of the Agent Bank
IV. Conclusion
9.14
9.15
9.17
9.17
9.18
9.19
9.23
9.27
9.28
9.32
9.33
9.35
9.36
9.38
9.41
9.42
9.43
9.44
9.45
9.47
9.48
9.49
9.50
9.51
9.52
9.53
9.54
9.55
9.56
9.58
9.63
9.65
9.66
9.67
9.69
9.72
xxi
Contents
10. Syndicated Loans and Borrower Insolvency: Winding-up
and Workout Procedures
I. Introduction
A. Practical Considerations Concerning Insolvency Procedures
B. Meaning of Insolvency
1. Commercial Insolvency
2. Balance-sheet Insolvency Test
II. Formal Statutory Insolvency Proceedings

A. Winding-up or Liquidation
1. Winding-up by the Court
2. Voluntary Winding-upa Brief Note
3. Legal Consequences of Winding-up on Syndicated Loans
a. Capacity to conduct winding-up proceedings
b. Legal proceedings and enforcement of claims
c. Disposition of property
d. Completion of the agreement
e. Obligations of the borrower
f. The companys business
g. Managementappointment of the liquidator
h. Distribution of assets
B. Administrative ReceivershipLimited Application
III. Rescue and Restructuring Methods and Procedures

A. A Brief Comparison of English and US Law Procedures
B. Administration
1. Commencement of Administration
2. Basic Mechanics of Administration
3. Consequences of Administration Relevant
to Syndicated Loans
C. Company Voluntary Arrangement
1. The Company Voluntary Arrangement Process
2. Small Companiesa Note
D. The London Approach
1. Main Features of the London Approach
a. Information gathering
b. The standstill period
c. Interbank issues
d. Financial support
e. Subsequent developments
IV. Conclusion
10.01
10.05
10.11
10.12
10.13
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.29
10.33
10.35
10.36
10.39
10.40
10.41
10.43
10.46
10.53
10.55
10.56
10.57
10.58
10.59
10.61
10.62
10.63
xxii
Contents
11. The Regulation of Syndicated Loans and the Secondary
Loan Market Practices
I. Introduction
11.01
II. Regulation of Capital Adequacy

A. Introducing Basel II
B. Three Approaches to Measuring Credit Risk
1. Standardized Approach
2. Internal Ratings-based ApproachesFoundation
and Advanced
C. Calculation of Minimum Capital Requirements
1. Regulatory Capital
2. Risk Weighting
a. Claims on sovereigns
b. Claims on banks
c. Claims on securities firms
d. Claims on corporates
e. Higher risk categories
f. Off-balance sheet items
3. Credit Risk Mitigation
a. Collateralized transactions
b. On-balance sheet netting
c. Guarantees and credit derivatives
4. Securitization Framework
D. Regulating Capital Adequacy in the United Kingdom
Implementation of Basel II
1. Exposure Reclassification
2. Asset Management TechniquesGenerally
a. Transfer of loan assets
b. Novation
c. Assignment
d. Declaration of trust
e. Sub-participation
f. Undrawn commitments
3. Commitments to Lend
4. Credit Risk Mitigation Techniques
a. Financial collateral
b. Non-Financial collateral
c. Guarantees and credit derivatives
d. Netting of financial obligations
11.02
11.02
11.08
11.09
11.10
11.12
11.13
11.14
11.16
11.17
11.18
11.19
11.20
11.21
11.22
11.23
11.24
11.25
11.26
11.28
11.31
11.33
11.34
11.36
11.37
11.38
11.39
11.40
11.41
11.42
11.43
11.44
11.45
11.46
III. Regulation of Large Loan Exposures
11.49
IV. Regulation of Debentures
11.51
xxiii
Contents
V. Prohibition of Market Abuse
A. Syndications Practice Generally
B. Secondary Loan Trading
C. Securitization
VI. Environmental and Social Regulation

A. The Equator Principles
1. Description
2. Background to the Equator Principles
3. The Content of the Equator Principles
a. Preamble
b. Scope
c. Statement of principles
d. Action planenvironmental management system
e. Financial institution reporting and independent
monitoring
B. An Early Critique of the Equator Principles
VII. Conclusion
11.52
11.55
11.57
11.58
11.60
11.61
11.61
11.65
11.71
11.72
11.74
11.76
11.80
11.85
11.86
11.89
12. Conclusion
I. Introduction
12.01
12.04
12.08
A. Summary
B. Law and Regulation
II. Future Directions

A. General
B. The Conceptual-Functional Approach to
Multi-Bank Financing
C. Standardization and Harmonization for Syndicated Loans
and Secondary Loan Market Practices
12.16
12.16
12.18
12.21
Appendix 1: Multicurrency Term Facility Agreement (Miranda

Projects/The Prospero Group/Ariel Bank Ltd)
Appendix 2: LSTA Sample Par/Near Par Participation Agreement
Appendix 3: LSTA Purchase and Sale Agreement for Distressed Trades
Appendix 4: LSTA Assignment and Assumption
Appendix 5: LSTA Model Transfer Provision
527
585
596
622
627
Index
631
xxiv
1
MULTI-BANK FINANCING:
WHAT IT IS AND IS NOT
I. Introduction
II. The Dynamism of Multi-Bank
Financing
A. Increasing Sophistication of
Client Needs
B. Impact of Economic Cycles
C. Different Types of Financial
Institutions and Methods
D. Impact of Changing Regulations
III. Designation of Multi-Bank

Financing
A. Increasing Participation of Other
Financial Institutions
IV. Description of Multi-Bank

Financing Transactions
1. The Syndicated Loan
a. Common varieties of
syndicated loans
b. Niche-market syndicated
loans
2. Club Deal Loans
B. Secondary Loan Market
Practices
1. Loan Participation and Loan
Sub-participation: Early
Differences between New York
and London Practices
2. Loan Sub-participations
3. Loan Participations
b. Differentiation between
types of loan participation
4. Transferable Loan Facilities

a Historical Note
a. Transferable loan
certificates
b. Transferable loan
instruments
5. Loan Trading
7. Collateralized Debt
Obligations
1.01
1.05
1.06
1.07
1.08
1.09
1.10
V. Multi-Bank Financing
Contrasted with Similar
1.13
A. Introduction
B. Multi-Bank Financing Contrasted
with Equity Syndications and
Participations
C. Multi-Bank Financing Contrasted
with Capital Market Methods
D. Multi-Bank Financing Contrasted
with International Bonds/
Eurobonds
E. Multi-Bank Financing Contrasted
with Commercial Paper
Programmes
F. Multi-Bank Financing
Contrasted with Securitization
2. Sale of Assets to a Trustee of a
Receivables Trust
1.14
1.15
1.15
1.17
1.26
1.31
1.35
1.37
1.38
1.40
1.40
VI. Conclusion
1.41
1.50
1.51
1.52
1.53
1.54
1.55
1.58
1.61
1.61
1.63
1.64
1.65
1.68
1.70
1.72
1.73
1.76
Multi-Bank Financing: What It is and is Not
I. Introduction
1.01 This introductory chapter describes the different types and phases of multi-
bank financing and distinguishes multi-bank financing from similar transactions.

These initial remarks are completed in chapter 2, which describes who uses multibank financing, where, and why.
1.02 Multi-bank financing occurs when a number of banks act in concert to extend
credit to a borrower. The combination of the banks is usually highly coordinated,

but in some cases the banks act in loose associations that are linked only by the
simultaneous extension of credit to a borrower. The two main phases of multibank financing are the syndicated loan and secondary loan market practices. In a
syndicated loan, several banks simultaneously make a loan to a borrower on the
basis of a single set of loan documents. A mandated lead arranger (or simply the
arranger) originates and puts together the loan; a bookrunner keeps the records
and distributes the loan to the various lenders; an agent bank administers the loan;
and the participants provide the funds. In a secondary loan market practice (there
are different types), the banks interest in the loan is sold or otherwise transferred
to other banks or financial institutions. The common methods for doing this
are the sub-participation, loan participation, loan trading, credit derivatives, and
collateralized debt obligations. Viewed together, the two phases of multi-bank
financing comprise a group of related credit-and-risk-transfer techniques that
permit the participants in the financial markets to manage their credit and risk
more precisely.
1.03 There is considerable diversity in the terminology used to refer to the key
financial practices discussed in this book. Some key wordssuch as syndication,

arranger, participation, sub-participation, and participantare not terms of art.
They are ordinary English words that may be used in different contexts to mean
different things. This observation holds true both in the financial community
and in legal literature where the terms syndication, participation, and subparticipation are frequently used in their ordinary meaning, sometimes interchangeably and at other times complementarily. Occasionally, too, the words are
qualified by adjectives or used interchangeably with others such as primary syndication, true syndication, simple syndicate, secondary syndication, direct or
indirect participation, silent participation, and sub-participation. It is therefore important for readers to pay particular regard to the substance of the financial
practices and also to be consistent with the labels used in any particular discussion. This book ascribes to the financial practices it discusses the labels and meaning commonly attached to them in euroloan practices, as practiced principally in
London in the United Kingdom. There is also some inevitable use of terminology
from industry practices in New York because of the overlapping practices in the
The Dynamism of Multi-Bank Financing

two leading international financial centres of London and New York. In the last
decade the major participants in the syndicated loans market have been developing common terminology and standard practices and documents that are increasingly used by the leading industry players. These documents, particularly those
made under the auspices of the Loan Markets Association (LMA) and Loan
Syndication and Trading Association (LSTA), are fairly representative of current
practice and are discussed in this book as such.
Table 1.1 below, illustrates the syndicated loans market by showing the state of the 1.04
market in the three years up to the end of 2006. The diagram illustrates total
amounts and the types of the leading financial institutions involved.
II. The Dynamism of Multi-Bank Financing

Multi-bank financing techniques continue to evolve. The factors behind the evo- 1.05
lution have impacted on the legal documentation for the transactions and also
explain some of the cases that have come before the courts. The modern practice
of syndicated loans and secondary loan market practices can fairly be described as
one where banks are trying to satisfy the increasingly sophisticated needs of their
clients in a competitive environment that involves many different types of financial institutions and against the background of a complex and demanding regulatory environment. It is therefore appropriate to mention briefly at this point some
of the important drivers of modern practices. The remarks are further explained
in chapter 2 and the remainder of the book.
A. Increasing Sophistication of Client Needs

Multi-bank financing developed simultaneously as a domestic and international 1.06
facility. The borrowers are usually large and sophisticated entities that are aware
of, and have access to, other types of financing as well. They would thus seek to
obtain the cheapest source of funds and will switch lenders if necessary. Their
needs are also varied and may simultaneously be domestic or international. Often
the borrower is a conglomerate or holding company whose financing needs require
a combination of different financing facilities. The consequence is that the lenders
are continually adapting as they seek to accommodate varied and sophisticated
clients. In some cases the borrowers have been known to specify the composition
of the lending institutions or the size of the lending group. The borrowers also frequently have an eye to the bond market, and may borrow by way of syndicated
loan as a bridge financing to a later bond issue. There are thus many short-term
loans in the region of twelve to eighteen months which the borrower expects to
refinance in the bond market, as well as loans with longer tenors.
Mitsubishi UFJ Financial

Group
BNP Paribas
Barclays Capital
ABN AMRO
Wachovia
Mizuho
Credit Suisse
Calyon
HSBC
Goldman Sachs
18
19
20
17
16
2,117,346.40
4,002,834.32
Total
52,375.67
51,215.37
51,097.50
61,215.37
65,124.41
113,925.85
101,973.13
96,574.39
89,355.93
88,303.49
84,659.81
84,218.33
76,340.42
76,185.41
115,564.89
261,589.78
211,276.31
178,318.95
129,916.50
128,114.89
Deal Value ($) (m)
Subtotal
SG Corporate &
Investment Banking
Sumitomo Mitsui Banking
Corp
Morgan Stanley
Scotia Capital
UBS
JP Morgan
Citigroup
Banc of America
Deutsche Bank
RBS
1
2
3
4
5
7
8
9
10
11
12
13
14
15
Lender Parent
Rank
2006
9,427
7,879
270
620
421
1,523
734
1,214
643
1,203
1,201
1,781
523
936
877
324
2,104
1,739
1,379
1,840
718
904
No.
100.00
52.90
1.31
1.28
1.28
1.53
1.63
2.85
2.55
2.41
2.23
2.21
2.11
2.10
1.91
1.90
2.89
6.54
5.28
4.45
3.25
3.20
%share
Table 1.1 Top lenders for global syndicated loans, 20042006
18
19
20
17
16
7
8
9
10
11
12
13
14
15
1
2
3
4
5
Rank
105,703.83
215,508.87
178,868.06
147,214.93
110,242.79
106,509.19
Deal Value ($) (m)
Total
Subtotal
UBS
NATIXIS
Scotia Capital
3,456,330.03
1,872,391.80
46,407.91
44,650.69
44,336.95
Deutsche Bank
104,349.59
RBS
97,371.93
Barclays Capital
96,928.20
HSBC
86,093.45
Calyon
84,069.75
Wachovia
79,389.98
Credit Suisse
73,340.33
Mizuho
72,057.25
SG Corporate &
69,577.60
Investment Banking
Sumitomo Mitsui Banking 59,450.50
Corp
ING
50,319.99
JP Morgan
Citigroup
Banc of America
BNP Paribas
Group
ABN AMRO
Lender Parent
4 2005
8,649
7,513
426
596
564
737
1,452
789
982
791
1,097
1,022
1,251
555
1,683
841
1,331
1,779
1,444
1,973
1,393
1,931
No.
100.00
54.17
1.34
1.29
1.28
1.46
1.72
3.02
2.82
2.80
2.49
2.43
2.30
2.12
2.08
2.01
3.06
6.24
5.18
4.26
3.19
3.08
%share

Group
Barclays Capital
RBS
Wachovia
HSBC
Calyon
Credit Suisse
SG Corporate & Investment
Banking
Corp
Mizuho
1,452,984.18
2,620,185.85
Total
37,760.22
37,145.55
36,994.17
34,094.78
39,921.68
44,598.11
78,706.35
72,715.02
69,372.60
65,721.67
61,632.55
55,985.22
47,732.88
81,069.63
179,574.79
125,291.98
121,814.56
91,937.01
85,640.34
85,275.06
6,716
5,847
553
691
436
456
827
1,063
784
851
1,196
933
873
563
688
1,459
1,741
1,893
1,282
1,249
785
1,262
Deal Value ($) (m) No.
Subtotal
Source: Dealogic
17
18
19
20
16
15
Scotia Capital
ING
UBS
NATIXIS
JP Morgan
Banc of America
Citigroup
ABN AMRO
Deutsche Bank
BNP Paribas
1
2
3
4
5
6
8
9
10
11
12
13
14
Lender Parent
Rank
2004
100.00
55.45
1.44
1.42
1.41
1.30
1.52
1.70
3.00
2.78
2.65
2.51
2.35
2.14
1.82
3.09
6.85
4.78
4.65
3.51
3.27
3.25
%share
17
18
19
20
16
15
8
9
10
11
12
13
14
1
2
3
4
5
6
Total
Subtotal
SG Corporate &
Investment Banking
Sumitomo Mitsui
Banking Corp
Goldman Sachs
UBS
Scotia Capital
ING
ABN AMRO
Barclays Capital
Wachovia
Calyon
HSBC
Credit Suisse
Mizuho
JP Morgan
Citigroup
Banc of America
Deutsche Bank
BNP Paribas
Mitsubishi UFJ
Financial Group
RBS
Rank Lender Parent
10,079,350.19
5,424,449.64
144,590.21
134,499.59
133,312.54
131,892.64
165,263.98
182,434.90
294,215.23
277,607.68
238,118.51
229,937.11
228,155.55
213,985.36
200,282.43
298,201.85
656,673.45
511,958.93
450,825.87
319,906.42
309,443.70
303,143.70
Deal Value ($) (m)
Total
24,792
21,268
813
1,283
1,737
2,006
4,038
2,263
3,783
2,218
3,648
2,831
2,907
1,641
4,291
2,737
5,259
4,105
5,706
2,292
3,869
5,494
No.
100.00
53.82
1.43
1.33
1.32
1.31
1.64
1.81
2.92
2.75
2.36
2.28
2.26
2.12
1.99
2.96
6.52
5.08
4.47
3.17
3.07
3.01
%share
The Dynamism of Multi-Bank Financing
B. Impact of Economic Cycles

1.07 The usual economic cycles affect (1) the number of loan transactions, (2) the size
of the loan facilities, (3) pricing for the loans, (4) default rates, and (5) institutional demand for secondary trading. A buoyant economy with low default rates
encourages lenders to commit to large loans and more frequently, whereas a contracting economy usually results in a more cautious approach in the number of
transactions and the terms on which the loans are made. A deteriorating economy
with high default rates spurs the secondary market in distressed loans.
C. Different Types of Financial Institutions and Methods

1.08 The early syndicated loans were simple structures assembled exclusively or
nearly so among banks. The transactions are no longer simple and they are no
longer exclusive to banks. Nowadays other types of financial institutions are
actively involved and include collateralized loan obligations (CLOs), hedge funds,
pension funds, and insurance companies to mention but a few1 Many of these
institutions are by nature investors and not lenders and they bring with them
different requirements and methods of operation. They also have different commitments to the business activity of lending and apply different criteria before
they get involved. In the secondary loan markets, for example, the investors
require loan interests to be rated and require credit risk to be packaged in a certain
way before they can invest in it. This in turn impacts on the documentation for
primary documents as well because syndicated loans are typically made in contemplation of a future transfer. Decades ago borrowers could tap funding either
by way of syndicated loan, capital market borrowing, or equity financing. To date,
the three methods interact significantly. Loan markets routinely borrow techniques from bond and equity markets and the funding was provided by different
institutions. It is generally acknowledged that there is increasing convergence of
the methods of syndicated loans and capital markets. This development has been
enhanced by the increasing participation of non-bank financial institutions in
syndicated loans. However, the apparent convergence extends only to similarity
in procedures and the ultimate economic benefit. Each method remains intact in
its own right, serves its original purpose, and coexists with the other two. The
convergence of financing methods and the participating institutions makes it
clear that the traditional stance of regulation according to institution is no longer
appropriate. The trend for regulation seems to focus on equality of treatment for
the financial institutions and securities concerned. This seeks to avoid regulatory
See ch 2 below.
Designation of Multi-Bank Financing

arbitrage and also reduces the likelihood of regional, jurisdictional, or industry
concentrations of risk driven by regulatory considerations.
D. Impact of Changing Regulations

In the early days, banks syndicated loans either because they could not individu- 1.09
ally raise the amount required by the borrower or because the banks wanted to
diversify the risk of lending. These origins, while still important, are no longer the
main drivers of multi-bank financing. Globally and domestically there have been
fairly continuous changes in the regulatory environment and this has a direct
impact on the business of syndicated loans and related practices. Perhaps the most
noteworthy regulatory measure that has directly affected syndicated loans and
related practices is capital adequacy regulation. The first capital adequacy regulations (Basel I)2 had a dramatic impact on the practice of syndicated loans by constraining the overall size of the lending portfolios of individual leading international
banks. The operative capital adequacy regulations (Basel II)3 refine the calculation
of the capital required of individual banks by further distinguishing between
different assets and types of risk. Again, the regulations are affecting the business
of syndicated loans and related practices by differentiating between types of
assets, which affects the choices that banks make. Other regulations that have
had an impact on syndicated loans are those that place limits on large exposures,
thus effectively putting a limit on how much a bank can lend to an individual borrower or group of related borrowers. Furthermore, the more liberal regulatory
environment now permits different types of financial institutions to participate in
syndicated loans (previously some did not) which means the market is more
liquid but also more demanding because different institutions specify different
requirements.
III. Designation of Multi-Bank Financing

The label multi-bank is a misnomer for the range of activity and institutions 1.10
covered in this book. Multi-bank financing suggests that two or more banks
together finance a borrower. However, many types of non-bank financial
institutions actively take part in these deals and the trend is set to continue. It is
appropriate, therefore, to inquire why the narrower multi-bank label is suitable
for practices that include institutions other than banks. The label multi-bank is
2 Basel Committee on Banking Supervision, International Convergence of Capital Measurement

and Capital Standards (July 1988) as amended.
3 Basel Committee on Banking Supervision, International Convergence of Capital Measurement
and Capital Standards, A Revised Framework (November 2005).

justified because it captures the practical reality that banks historically occupied
and still occupy the pivotal role in syndicated loans and secondary loan market
practices. Banks remain the primary source for corporations that wish to borrow
by way of loans. Furthermore, commercial lending is the main business activity
of banks as a group as contrasted to other financial institutions, and most banks
are primarily and regularly engaged in primary lending. In the practice of syndicated loans and secondary market practices, the banks occupy a central position
because they are the main initiators of the transactions, they participate in greater
numbers than any other type of financial institution, and they frequently advance
the largest portion of the value of the funds. While it is the case that the institutional investors in recent years do provide large amounts of capital in the primary
and secondary markets that sometimes exceed those of banks, it is rare for a nonbank financial institution to maintain an on-going leading role in a syndicated
loan beyond the structuring of the loan. Banks set the agenda in this area, hence
the label multi-bank financing.4
1.11 In law, lending is one of the twin elements (the other one being the taking of
deposits) that have consistently been recognized as the primary business of banking.5 Even where the business of banking has not been decided with certainty,
and it may be the case that it is no longer important to have such a definition,6 it
is clear that banks spearhead the provision of commercial lending. The banks, as
deposit taking institutions and custodians of national savings, are uniquely placed
for general lending and the unrestricted making of commercial loans has, as a rule
of practice, remained a core function of the banks. Extending credit generally in
the primary markets has thus largely been in the domain of the banks.
1.12 Tables 1.2 to 1.7 below, illustrate the dominant position of the banks as book run-
ners and mandated lead arrangers in the practice of syndicated loans globally, in
Europe, the Middle East, and Africa (EMEA) and the United States. The tables
should be read in conjunction with Table 1.1 above, which showed that the banks
are also the leading providers of funds.
4 The term multi-lender would also be suitable, but it lacks the inherent protections and privileges the law confers on banks. For these see United Dominion Trust Ltd v Kirkwood [1966] 1 All ER
968, 975 (CA).
5 State Savings Bank of Victoria Commissioners v Permewan, Wright & Co Ltd (1915) 19 CLR 457;
United Dominion Trust Ltd v Kirkwood (n 4 above) 975.
6 The operative terminology for regulatory purposes is credit institution because Directive
2006/48/EC relating to the taking up and pursuit of the business of credit institutions defines a
credit institution as an undertaking whose business is to receive deposits or other repayable funds
from the public and to grant credits for its own account. In practical terms, banks are the most visible credit institutions.
19
20
4,002,834.32
46,015.10
44,115.90
49,873.97
50,756.58
50,469.25
Total
SG Corporate &
Investment Banking
Dresdner Kleinwort
HSBC
18
16
17
64,616.94
59,389.71
68,324.34
2,649,034.38
Sumitomo Mitsui
Banking Corp
ABN AMRO
Mitsubishi UFJ
Financial Group
Merrill Lynch
Morgan Stanley
13
528,777.69
377,466.20
357,333.73
144,224.96
133,513.17
125,785.13
124,075.29
115,232.84
97,32 2.68
72,219.40
70,459.18
69,062.34
9,427
6,285
91
142
136
130
64
301
727
648
1,051
620
1,149
263
219
397
245
430
209
218
141
707
Subtotal
JP Morgan
Citigroup
Banc of America
RBS
Deutsche Bank
BNP Paribas
Barclays Capital
Wachovia
Credit Suisse
Calyon
Goldman Sachs
Mizuho
1
2
3
4
5
6
7
8
9
10
11
12
14
15
Bookrunner
Rank
2006
100
66.18
1.15
1.1
1.25
1.27
1.26
1.61
1.48
1.71
13.21
9.43
8.93
3.6
3.34
3.14
3.1
2.88
2.43
1.8
1.76
1.73
%share
Table 1.2 Top book runners for global syndicated loans, 20042006
19
20
18
16
17
14
15
13
1
2
3
4
5
6
7
8
9
10
11
12
Rank
Total
Subtotal
Dresdner Kleinwort
UBS
HSBC
Corp
Goldman Sachs
Group
Lehman Brothers
JP Morgan
Citigroup
Banc of America
Deutsche Bank
RBS
BNP Paribas
Barclays Capital
Wachovia
ABN AMRO
Calyon
Mizuho
SG Corporate &
Investment Banking
Credit Suisse
Bookrunner
3,456,330.03
2,479,979.76
37,778.63
31,892.57
40,093.50
54,566.64
47,894.78
59,813.55
58,927.83
62,543.25
491,748.75
417,934.36
315,607.25
124,539.22
116,398.42
112,106.29
110,112.46
99,860.56
80,417.14
77,478.88
76,668.89
63,596.76
Deal Value ($) (m)
2005
8,649
5,982
78
89
92
100
556
207
561
175
1,037
723
1,175
220
254
413
262
433
312
232
654
162
No.
100
71.75
1.09
0.92
1.16
1.58
1.39
1.73
1.7
1.81
14.23
12.09
9.13
3.6
3.37
3.24
3.19
2.89
2.33
2.24
2.22
1.84
%share
10
Source: Dealogic.
2,620,185.85
Total
23,233.87
22,443.92
21,754.69
25,912.61
25,685.30
32,698.21
1,934,917.36
Commerzbank Group
Merrill Lynch
Mizuho
18
19
20
16
17
15
35,268.49
483,357.62
312,083.05
308,267.11
100,623.10
100,277.64
85,561.75
77,001.69
54,935.24
54,398.58
50,827.01
41,755.53
40,326.05
38,505.90
Deal Value ($) (m)
2004
Subtotal
JP Morgan
Citigroup
Banc of America
Barclays Capital
Deutsche Bank
Wachovia
BNP Paribas
ABN AMRO
RBS
Credit Suisse
HSBC
Calyon
Sumitomo Mitsui
Banking Corp
SG Corporate &
Investment Banking
Mitsubishi UFJ
Financial Group
Lehman Brothers
Goldman Sachs
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Bookrunner
Rank
Table 1.2 (cont.)
6,716
4,743
97
63
106
80
76
300
128
1,059
669
1,141
253
236
410
336
257
180
156
184
147
381
No.
100
73.85
0.89
0.86
0.83
0.99
0.98
1.25
1.35
18.45
11.91
11.77
3.84
3.83
3.27
2.94
2.1
2.08
1.94
1.59
1.54
1.47
% share
18
19
20
16
17
15
14
1
2
3
4
5
6
7
8
9
10
11
12
13
Rank
Total
Subtotal

Banking
HSBC
Group
Dresdner Kleinwort
Lehman Brothers
Merrill Lynch
JP Morgan
Citigroup
Banc of America
Deutsche Bank
Barclays Capital
RBS
BNP Paribas
Wachovia
Credit Suisse
ABN AMRO
Calyon
Mizuho
Sumitomo Mitsui
Banking Corp
Goldman Sachs
Bookrunner
10,079,350.19
7,034,681.70
102,522.72
101,082.50
95,741.01
145,684.98
139,982.70
148,739.23
150,711.11
1,503,884.06
1,107,483.61
981,208.09
358,330.03
334,810.85
315,021.96
314,893.11
300,655.15
210,692.94
199,969.32
190,024.34
167,485.92
165,758.07
Deal Value ($) (m)
Total
24,792
16,988
227
270
272
533
1,583
426
317
3,147
2,012
3,465
675
760
697
1,146
1,273
540
870
597
1,467
1,590
No.
100
69.79
1.02
1
0.95
1.45
1.39
1.48
1.5
14.92
10.99
9.73
3.56
3.32
3.13
3.12
2.98
2.09
1.98
1.89
1.66
1.64
% share
11
17
18
19
20
Total
Subtotal
RBS
Citigroup
BNP Paribas
Barclays Capital
Deutsche Bank
Calyon
JP Morgan
SG Corporate &
Investment Banking
Dresdner Kleinwort
ABN AMRO
HSBC
Goldman Sachs
Nordea Bank AB
Commerzbank Group
Morgan Stanley
Banco Santander Central
Hispano SA - BSCH
Credit Suisse
ING
UniCredit Group
NATIXIS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Bookrunner
Rank
1,487,114.84
865,900.98
19,431.07
19,098.98
16,507.43
16,501.61
42,794.14
27,416.49
25,803.74
24,527.87
23,966.39
22,919.61
22,556.59
19,681.22
101,648.37
91,651.37
85,926.41
77,959.44
68,977.92
56,754.03
55,736.68
46,041.63
Deal Value ($) (m)
2006
2,157
1,273
34
87
79
77
85
86
62
26
81
87
15
33
182
136
256
155
81
139
63
113
No.
100
58.23
1.31
1.28
1.11
1.11
2.88
1.84
1.74
1.65
1.61
1.54
1.52
1.32
6.84
6.16
5.78
5.24
4.64
3.82
3.75
3.1
%share
Table 1.3 Top book runners for EMEA syndicated loans, 20042006
17
18
19
20
9
10
11
12
13
14
15
16
1
2
3
4
5
6
7
8
Total
Subtotal
Morgan Stanley
UBS
Credit Suisse
NATIXIS
Citigroup
RBS
BNP Paribas
Barclays Capital
Calyon
JP Morgan
Deutsche Bank
SG Corporate &
Investment Banking
ABN AMRO
HSBC
Dresdner Kleinwort
ING
Nordea Bank AB
Goldman Sachs
Commerzbank Group
UniCredit Group
Rank Bookrunner
1,426,518.65
940,276.30
16,817.13
13,892.72
11,708.31
11,455.93
51,367.70
48,181.43
37,636.96
21,810.17
21,683.24
19,791.73
17,657.10
16,858.41
123,394.51
98,967.66
89,942.38
77,678.08
68,961.24
66,255.71
66,245.93
59,969.98
Deal Value ($) (m)
2005
2,143
1,299
12
16
19
59
93
122
77
97
73
14
91
75
205
185
283
175
145
85
95
136
No.
100
65.91
1.18
0.97
0.82
0.8
3.6
3.38
2.64
1.53
1.52
1.39
1.24
1.18
8.65
6.94
6.31
5.45
4.83
4.64
4.64
4.2
%share
12
Source: Dealogic.
951,739.11
Total
20,537.45
18,173.91
15,559.95
14,953.01
13,003.71
12,660.20
10,887.75
10,656.83
8,697.95
7,967.49
32,689.39
31,797.56
619,308.31
HSBC
SG Corporate &
Investment Banking
Commerzbank Group
Dresdner Kleinwort
UniCredit Group
Lloyds TSB
Nordea Bank AB
ING
Merrill Lynch
Goldman Sachs
Intesa Sanpaolo
Banc of America
9
10
70,708.36
69,147.32
59,296.29
52,387.69
51,880.70
47,637.04
35,403.10
35,262.61
Deal Value ($) (m)
2004
Subtotal
Barclays Capital
Citigroup
BNP Paribas
Deutsche Bank
JP Morgan
RBS
Calyon
ABN AMRO
1
2
3
4
5
6
7
8
11
12
13
14
15
16
17
18
19
20
Bookrunner
Rank
Table 1.3 (cont.)
1,752
1,088
78
56
65
46
46
58
3
17
31
23
110
98
171
159
232
94
72
153
87
104
No.
100
65.07
2.16
1.91
1.63
1.57
1.37
1.33
1.14
1.12
0.91
0.84
3.43
3.34
7.43
7.27
6.23
5.5
5.45
5.01
3.72
3.71
%share
11
12
13
14
15
16
17
18
19
20
9
10
1
2
3
4
5
6
7
8
Total
Subtotal
Dresdner Kleinwort
Commerzbank Group
Nordea Bank AB
Goldman Sachs
ING
UniCredit Group
Morgan Stanley
Lloyds TSB
Credit Suisse
NATIXIS
Citigroup
RBS
BNP Paribas
Barclays Capital
Deutsche Bank
JP Morgan
Calyon
SG Corporate &
Investment Banking
ABN AMRO
HSBC
Rank Bookrunner
3,865,372.59
2,406,361.64
98,605.02
61,114.16
58,653.33
54,976.43
53,569.34
48,925.79
42,967.50
39,424.91
38,199.31
34,835.09
114,046.81
106,674.55
284,193.20
248,253.07
235,165.08
226,345.88
187,611.55
173,873.10
161,118.36
137,809.17
6,052
3,668
218
256
200
57
242
219
34
127
73
176
283
294
500
520
771
501
270
220
371
347
Total
100
62.25
2.55
1.58
1.52
1.42
1.39
1.27
1.11
1.02
0.99
0.9
2.95
2.76
7.35
6.42
6.08
5.86
4.85
4.5
4.17
3.57
%share
13
1,884,017.67
Total
469,219.96
348,456.40
256,972.87
113,542.40
66,714.12
61,945.01
43,936.47
42,347.83
39,367.05
38,525.46
32,450.90
32,010.03
28,304.00
26,836.69
26,191.47
24,477.29
23,369.58
23,097.74
18,640.67
17,088.13
1,733,494.08
JP Morgan
Banc of America
Citigroup
Wachovia
Credit Suisse
Deutsche Bank
Goldman Sachs
Barclays Capital
Merrill Lynch
RBS
PNC Bank NA
Wells Fargo
UBS
Lehman Brothers
BNP Paribas
Morgan Stanley
ABN AMRO
GE Capital
KeyBanc Capital Markets
Bear Stearns
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Deal Value ($) (m)
Subtotal
Bookrunner
Rank
2006
4,040
3,618
971
1,119
383
425
163
129
111
72
119
69
176
209
84
86
64
46
169
192
148
58
No.
100
92.01
24.91
18.5
13.64
6.03
3.54
3.29
2.33
2.25
2.09
2.04
1.72
1.7
1.5
1.42
1.39
1.3
1.24
1.23
0.99
0.91
%share
Table 1.4 Top book runners for US syndicated loans, 20042006
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total
Subtotal
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
Credit Suisse
Goldman Sachs
Lehman Brothers
Barclays Capital
Wells Fargo
ABN AMRO
UBS
GE Capital
RBS
SunTrust Banks
BNP Paribas
Merrill Lynch
PNC Bank NA
Morgan Stanley
Rank Bookrunner
1,570,499.76
1,466,280.38
419,035.71
299,065.87
262,488.00
99,860.56
56,999.72
46,303.00
32,166.74
31,071.45
28,904.37
27,622.05
20,414.61
19,705.24
17,911.95
17,279.62
16,480.37
15,270.35
15,074.39
14,752.66
13,052.75
12,820.98
Deal Value ($) (m)
2005
3,793
3,480
924
1,113
395
433
117
150
83
82
66
155
165
138
72
137
66
59
63
68
180
33
No.
100
93.36
26.68
19.04
16.71
6.36
3.63
2.95
2.05
1.98
1.84
1.76
1.3
1.25
1.14
1.1
1.05
0.97
0.96
0.94
0.83
0.82
%share
14
1,301,515.48
1,370,890.39
Total
423,811.92
296,707.77
213,551.65
85,351.75
46,167.37
42,998.70
24,122.93
22,012.90
19,556.19
14,933.00
13,956.21
12,658.48
11,799.78
11,276.54
11,265.41
11,145.61
11,086.25
10,393.24
9,853.63
8,866.15
Deal Value ($) (m)
2004
Subtotal
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
Credit Suisse
Barclays Capital
Lehman Brothers
Wells Fargo
Goldman Sachs
UBS
Bank of New York
BNP Paribas
PNC Bank NA
Merrill Lynch
SunTrust Banks
ABN AMRO
GE Capital
Scotia Capital
Morgan Stanley
Source: Dealogic.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Rank Bookrunner
Table 1.4 (cont.)
3,454
3,248
956
1,080
386
408
134
135
58
71
155
62
71
66
54
153
58
71
92
95
44
32
No.
100
94.94
30.92
21.64
15.58
6.23
3.37
3.14
1.76
1.61
1.43
1.09
1.02
0.92
0.86
0.82
0.82
0.81
0.81
0.76
0.72
0.65
%share
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Rank
Total
Subtotal
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
Credit Suisse
Barclays Capital
Goldman Sachs
Lehman Brothers
Wells Fargo
Merrill Lynch
RBS
UBS
PNC Bank NA
ABN AMRO
BNP Paribas
GE Capital
Morgan Stanley
SunTrust Banks
Bookrunner
4,825,407.82
4,490,394.82
1,312,067.58
944,230.05
733,012.51
298,754.71
165,112.09
156,015.82
95,375.13
91,036.21
79,921.05
79,188.26
65,385.12
60,987.78
60,172.15
56,780.19
54,870.43
53,065.64
50,770.61
46,164.42
44,226.25
43,258.81
Deal Value ($) (m)
Total
11,287
10,323
2,851
3,312
1,164
1,266
380
448
196
256
239
519
245
159
227
509
426
181
424
111
324
198
No.
100
93.06
27.19
19.57
15.19
6.19
3.42
3.23
1.98
1.89
1.66
1.64
1.36
1.26
1.25
1.18
1.14
1.1
1.05
0.96
0.92
0.9
% share
15
18
19
20
15
16
17
10
11
12
13
14
1
2
3
4
5
6
7
8
9
2,733,403.88
4,002,834.32
Total
52,902.93
52,737.35
48,253.23
79,409.94
79,372.40
67,085.99
103,040.94
95,093.09
94,680.19
93,189.77
87,278.99
414,670.39
325,231.88
296,283.28
175,246.05
164,772.80
152,342.12
130,918.84
116,499.85
104,393.86
Subtotal
JP Morgan
Citigroup
Banc of America
RBS
Deutsche Bank
BNP Paribas
Barclays Capital
Wachovia
Mitsubishi UFJ
Financial Group
Credit Suisse
ABN AMRO
Mizuho
Calyon
Sumitomo Mitsui
Banking Corp
Goldman Sachs
HSBC
SG Corporate &
Investment Banking
Morgan Stanley
UBS
Scotia Capital
9,427
7,192
119
194
275
199
413
325
297
668
958
497
864
1,378
1,014
1,548
583
427
777
436
802
1,115
Rank Mandated Arranger Deal Value ($) (m) No.
2006
100
68.29
1.32
1.32
1.21
1.98
1.98
1.68
2.57
2.38
2.37
2.33
2.18
10.36
8.13
7.4
4.38
4.12
3.81
3.27
2.91
2.61
%share
18
19
20
15
16
17
10
11
12
13
14
1
2
3
4
5
6
7
8
9
Total
Subtotal
ING
UBS
Dresdner Kleinwort
3,456,330.03
2,474,907.43
44,106.12
41,355.07
39,812.66
75,396.03
67,972.19
51,138.53
98,895.76
97,995.05
83,588.10
78,574.55
78,178.61
342,492.56
325,961.65
270,000.72
144,657.79
142,652.56
139,534.97
134,160.19
118,108.41
100,325.92
8,649
6,808
303
171
154
812
694
130
518
491
799
266
374
1,379
1,098
1,625
432
558
799
499
669
833
2005
HSBC
Calyon
Mizuho
Credit Suisse
SG Corporate &
Investment Banking
Mitsubishi UFJ Financial Group
Sumitomo Mitsui Banking Corp
Goldman Sachs
JP Morgan
Citigroup
Banc of America
Deutsche Bank
RBS
BNP Paribas
Barclays Capital
ABN AMRO
Wachovia
Rank Mandated Arranger
Table 1.5 Top mandated lead arrangers for global syndicated loans, 20042006
100
71.61
1.28
1.2
1.15
2.18
1.97
1.48
2.86
2.84
2.42
2.27
2.26
9.91
9.43
7.81
4.19
4.13
4.04
3.88
3.42
2.9
%share
16
2,620,185.85
Total
Source: Dealogic.
1,921,617.09
32,366.72
30,079.87
29,427.69
28,990.26
33,714.90
46,412.23
54,125.20
49,490.08
305,429.35
264,325.69
245,321.40
119,724.13
116,447.53
110,048.33
99,519.63
91,665.35
74,714.14
70,685.83
62,249.12
56,879.63
73.34
1.24
1.15
1.12
1.11
1.29
1.77
2.07
1.89
11.66
10.09
9.36
4.57
4.44
4.2
3.8
3.5
2.85
2.7
2.38
2.17
%share
6,716 100
5,398
225
131
139
175
211
286
240
514
1,373
1,022
1,519
447
466
656
604
793
416
415
350
534
2004
Subtotal
Scotia Capital
Dresdner Kleinwort
Merrill Lynch
UBS
17
18
19
20
16
15
13
14
JP Morgan
Citigroup
Banc of America
Deutsche Bank
Barclays Capital
BNP Paribas
ABN AMRO
Wachovia
RBS
HSBC
Calyon
Mitsubishi UFJ
Financial Group
Credit Suisse
Sumitomo Mitsui
Banking Corp
Banking
Commerzbank Group
1
2
3
4
5
6
7
8
9
10
11
12
Table 1.5 (cont.)
17
18
19
20
16
15
13
14
1
2
3
4
5
6
7
8
9
10
11
12
Total
Subtotal

Banking
Goldman Sachs
UBS
Dresdner Kleinwort
Scotia Capital
JP Morgan
Citigroup
Banc of America
Deutsche Bank
BNP Paribas
RBS
Barclays Capital
ABN AMRO
Wachovia
Calyon
HSBC
Mitsubishi UFJ
Financial Group
Credit Suisse
Sumitomo Mitsui
Banking Corp
Mizuho
10,079,350.19
7,106,498.68
157,642.92
123,082.69
117,574.02
117,305.64
191,676.82
203,528.59
235,740.68
204,741.26
1,062,592.31
915,519.21
811,605.40
429,154.72
401,925.41
392,612.75
381,526.56
312,721.13
308,491.11
253,433.94
248,953.99
236,669.52
70.51
1.56
1.22
1.17
1.16
1.9
2.02
2.34
2.03
10.54
9.08
8.05
4.26
3.99
3.9
3.79
3.1
3.06
2.51
2.47
2.35
%share
24,792 100
19,416
433
540
445
739
985
1,957
803
2,072
4,130
3,134
4,692
1,306
2,232
1,557
1,401
1,941
2,428
1,338
1,346
2,461
Total
17
20
1,487,114.84
Total
24,817.19
54,206.42
43,186.99
39,958.68
33,978.37
33,279.32
30,455.40
29,563.73
25,359.97
25,177.37
25,051.89
24,929.52
54,949.14
1,029,850.83
SG Corporate &
Investment Banking
HSBC
Dresdner Kleinwort
ABN AMRO
Goldman Sachs
NATIXIS
Commerzbank Group
Credit Suisse
Morgan Stanley
ING
Nordea Bank AB
Banco Santander Central
Hispano SA - BSCH
UniCredit Group
113,948.47
90,946.39
85,531.89
84,639.12
83,374.22
65,513.47
60,983.29
Deal Value ($) (m)
Subtotal
RBS
Citigroup
Barclays Capital
BNP Paribas
Deutsche Bank
JP Morgan
Calyon
1
2
3
4
5
6
7
9
10
11
12
13
14
15
16
17
18
19
Mandated Arranger
Rank
2006
2,157
1,700
184
202
146
203
39
170
167
65
33
195
133
104
238
321
266
256
399
166
124
253
No.
100
69.25
1.67
3.65
2.9
2.69
2.28
2.24
2.05
1.99
1.71
1.69
1.68
1.68
3.7
7.66
6.12
5.75
5.69
5.61
4.41
4.1
%share
20
9
10
11
12
13
14
15
16
17
18
19
1
2
3
4
5
6
7
Rank
Table 1.6 Top mandated lead arrangers for EMEA syndicated loans, 20042006
Total
Subtotal
UBS
JP Morgan
ABN AMRO
Dresdner Kleinwort
ING
UniCredit Group
NATIXIS
Commerzbank Group
Credit Suisse
Nordea Bank AB
Goldman Sachs
Morgan Stanley
Citigroup
RBS
BNP Paribas
Barclays Capital
Calyon
HSBC
SG Corporate &
Investment Banking
Deutsche Bank
1,426,518.65
1,070,803.85
19,090.98
63,889.28
57,735.05
39,505.88
34,069.84
28,805.61
28,282.97
27,098.17
22,281.24
21,975.36
21,864.01
21,616.52
65,940.66
121,208.53
102,814.32
92,352.86
90,294.72
73,272.99
70,903.12
67,801.77
2,143
1,706
40
145
209
150
202
174
139
167
47
120
20
25
179
337
342
460
315
271
307
274
Mandated Arranger Deal Value ($) (m) No.
2005
100
75.06
1.34
4.48
4.05
2.77
2.39
2.02
1.98
1.9
1.56
1.54
1.53
1.52
4.62
8.5
7.21
6.47
6.33
5.14
4.97
4.75
%share
18
728,955.28
951,739.11
Total
28,463.07
24,442.11
20,573.51
19,097.11
18,578.33
18,451.02
13,080.74
12,805.43
12,108.71
11,945.40
36,879.64
76,251.83
71,006.96
68,645.51
56,098.10
51,226.42
50,165.50
48,945.66
45,189.82
45,000.41
1,752
1,399
120
148
155
105
92
127
9
50
80
25
193
288
258
359
288
167
126
233
196
183
2004
Subtotal
Source: Dealogic.
11
12
13
14
15
16
17
18
19
20
SG Corporate &
Investment Banking
Dresdner Kleinwort
Commerzbank Group
ING
NATIXIS
Lloyds TSB
UniCredit Group
Merrill Lynch
Banc of America
Nordea Bank AB
Goldman Sachs
Barclays Capital
Citigroup
BNP Paribas
RBS
Deutsche Bank
JP Morgan
HSBC
ABN AMRO
Calyon
1
2
3
4
5
6
7
8
9
10
Mandated Arranger
Rank
Table 1.6 (cont.)
100
76.59
2.99
2.57
2.16
2.01
1.95
1.94
1.37
1.35
1.27
1.26
3.87
8.01
7.46
7.21
5.89
5.38
5.27
5.14
4.75
4.73
%share
11
12
13
14
15
16
17
18
19
20
10
1
2
3
4
5
6
7
8
9
Total
Subtotal
Dresdner Kleinwort
Commerzbank Group
NATIXIS
ING
UniCredit Group
Goldman Sachs
Credit Suisse
Lloyds TSB
Nordea Bank AB
Morgan Stanley
Citigroup
RBS
Barclays Capital
BNP Paribas
Deutsche Bank
JP Morgan
Calyon
HSBC
SG Corporate &
Investment Banking
ABN AMRO
3,865,372.59
2,815,733.83
111,155.94
81,995.68
80,659.41
79,820.71
72,073.82
67,787.79
61,778.34
60,124.83
59,135.96
51,527.15
142,883.55
283,161.88
272,860.89
252,078.44
245,637.48
200,541.29
179,568.25
179,256.69
174,055.19
159,630.55
Deal Value ($) (m)
Total
6,052
4,791
416
482
414
552
485
84
153
324
333
73
608
861
951
859
1,218
512
395
707
742
705
No.
100
72.85
2.88
2.12
2.09
2.07
1.86
1.75
1.6
1.56
1.53
1.33
3.7
7.33
7.06
6.52
6.35
5.19
4.65
4.64
4.5
4.13
%share
19
19
20
25,474.76
25,119.94
34,351.16
33,413.67
26,596.55
1,884,017.67
Morgan Stanley
SunTrust Banks
16
17
18
41,240.30
39,063.25
38,139.76
36,533.84
34,532.97
Total
UBS
PNC Bank NA
Lehman Brothers
11
12
13
14
15
342,957.01
281,361.18
201,867.13
112,684.39
75,541.80
66,102.96
52,710.75
48,453.28
43,557.71
41,671.80
1,601,374.23
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
Credit Suisse
RBS
BNP Paribas
ABN AMRO
Group
Barclays Capital
Goldman Sachs
Wells Fargo
Merrill Lynch
GE Capital
1
2
3
4
5
6
7
8
9
10
Deal Value ($) (m)
Subtotal
Mandated Arranger
Rank
2006
4,040
3,676
82
208
151
228
118
130
146
410
193
345
1,217
1,470
567
745
238
216
206
204
374
188
No.
100
85
1.35
1.33
1.82
1.77
1.41
2.19
2.07
2.02
1.94
1.83
18.2
14.93
10.71
5.98
4.01
3.51
2.8
2.57
2.31
2.21
%share
19
20
16
17
18
11
12
13
14
15
1
2
3
4
5
6
7
8
9
10
Rank
Table 1.7 Top mandated lead arrangers for US syndicated loans, 20042006
Total
Subtotal
Wells Fargo
GE Capital
Goldman Sachs
SunTrust Banks
Mitsubishi UFJ
Financial Group
Scotia Capital
Lehman Brothers
KeyBanc Capital
Markets
UBS
Morgan Stanley
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
ABN AMRO
Credit Suisse
Barclays Capital
RBS
BNP Paribas
1,570,499.76
1,338,138.95
22,109.19
16,785.71
24,423.41
24,125.03
22,791.05
36,342.67
26,710.25
25,743.05
25,550.82
24,805.46
272,602.81
247,989.57
174,574.96
98,917.28
77,183.80
51,574.42
50,954.65
40,384.62
37,391.77
37,178.44
3,793
3,464
129
57
144
104
288
366
301
104
238
166
1,197
1,521
599
797
239
372
210
151
201
215
Mandated Arranger Deal Value ($) (m) No.
2005
100
85.2
1.41
1.07
1.56
1.54
1.45
2.31
1.7
1.64
1.63
1.58
17.36
15.79
11.12
6.3
4.91
3.28
3.24
2.57
2.38
2.37
%share
20
Source: Dealogic.
1,370,890.39
Total
23,073.28
21,998.85
20,916.24
20,475.52
17,124.67
17,123.65
15,807.15
14,973.75
1,180,752.46
UBS
Mitsubishi UFJ Financial Group
Lehman Brothers
GE Capital
RBS
Bank of New York
Merrill Lynch
Goldman Sachs
13
14
15
16
17
18
19
20
247,352.04
227,976.25
163,463.70
90,813.19
65,408.36
43,834.97
43,025.78
35,439.11
34,381.56
28,457.67
25,391.96
23,714.74
3,454
3,208
146
151
102
255
117
152
128
81
1,208
1,419
599
764
261
313
195
148
199
348
160
256
2004
Subtotal
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
ABN AMRO
Credit Suisse
Barclays Capital
BNP Paribas
Wells Fargo
Scotia Capital
SunTrust Banks
1
2
3
4
5
6
7
8
9
10
11
12
Table 1.7 (cont.)
100
86.13
1.68
1.6
1.53
1.49
1.25
1.25
1.15
1.09
18.04
16.63
11.92
6.62
4.77
3.2
3.14
2.59
2.51
2.08
1.85
1.73
%share
13
14
15
16
17
18
19
20
1
2
3
4
5
6
7
8
9
10
11
12
Total
Subtotal
JP Morgan
Banc of America
Citigroup
Wachovia
Deutsche Bank
Credit Suisse
ABN AMRO
BNP Paribas
Barclays Capital
RBS
Wells Fargo
Group
GE Capital
Goldman Sachs
UBS
SunTrust Banks
Lehman Brothers
Scotia Capital
Merrill Lynch
4,825,407.82
4,101,087.79
81,718.74
79,780.05
79,533.64
74,385.50
71,637.82
70,196.31
67,635.58
60,735.49
862,911.85
757,327.00
539,905.79
302,414.86
218,133.96
160,083.40
138,967.10
120,013.28
117,064.03
107,227.19
102,940.10
88,476.11
84.99
1.69
1.65
1.65
1.54
1.48
1.45
1.4
1.26
17.88
15.69
11.19
6.27
4.52
3.32
2.88
2.49
2.43
2.22
2.13
1.83
%share
11,287 100
10,304
901
331
426
702
324
393
449
710
3,622
4,410
1,765
2,306
738
621
1,059
618
429
524
1,124
505
Total
A. Increasing Participation of Other Financial Institutions

Non-bank financial institutions have significantly increased their rate of partici- 1.13
pation and percentage share of both syndicated loans and secondary market
practices. In the current market conditions they are providing about one-half
of the liquidity in secondary market transactions and their share of the primary
syndications is also increasing, even though it may not be as high as that in secondary market transactions. The law is keeping pace with market developments, as
seen in the commercial context for, and the trilogy of decisions in Argo Fund Ltd v
Essar. In that case a syndicate of banks made a loan which contained restrictions
as to the class of persons to whom the loan could be transferred. The loan agreement was the standard Loan Markets Association (LMA) 1997 form, which
restricted a transfer to a bank or other financial institution, and contained no definition or elaboration of the term other financial institution. In 1997, loan trading was not as common as it was in 2004 when the case first went to court.
In 2004, in the first of the decisions, which was an application for summary judgment, the Court held that the expression financial institution should narrowly
be interpreted to apply to institutions akin to banks, a substantial proportion of
whose business involved the making of loans.7 When the matter came to trial, the
court adopted a broader, albeit still relatively narrow construction, and held
that the expression other financial institution covered institutions that shared
at least some characteristics of a bank.8 In the Court of Appeal, the expression
other financial institution was given a yet broader interpretation of a legally
recognised form or being, which carries on business in accordance with the laws
of the place of its creation and whose business concerns commercial finance. Such
an institution was not required to have bank-like characteristics such as the lending of money, whether in the primary or secondary markets.9 In a decision that
significantly opened up the secondary loan market to a wider range of financial
institutions, the Court of Appeal held that the essential characteristic of a financial
institution was that it provides capital to financial markets.10
Argo Fund Ltd v Essar [2004] All ER (D) 87 per Steel J.

Argo Fund Ltd v Essar [2006] 1 All ER (Comm) 56 per Aikens J.
9 Argo Fund Ltd v Essar [2006] 2 All ER (Comm) 104, 116 per Auld LJ, Hallett LJ
concurring (CA).
10 ibid 120 per Rix LJ (CA). See further ch 2 below.
7
8
21
IV. Description of Multi-Bank Financing Transactions

1.14 Multi-bank financing transactions may, for convenience, be divided into primary
and secondary transactions. Primary transactions are those where the banks lend
in concert from the outset. Secondary transactions are those where the lender
grants to other financial institutions a legal or economic interest in a loan that has
been made or committed. Both primary and secondary loan practices entail some
variety either in the number of procedures involved or the options available to
the borrower and the banks. As sometimes happens in other human endeavours,
the boundary between primary and secondary transactions can be imprecise. The
different transactions are described next.
1. The Syndicated Loan11
1.15 A syndicated loan is one where two or more banks join together to lend to a single
borrower on the basis of a single set of lending documents, of which the primary
document is usually called a loan agreement, credit agreement, facility agreement, or loan facility agreement.12 All the banks execute the one agreement and
there is privity of contract between the borrower and each of the banks. Legally,
each of the banks has a separate contract with the borrower even though, for
convenience, the separate contracts are printed in one document.13 Any security
taken for the loan is for the common benefit of all the banks. They own proportionate interests in it even though for convenience it may be held or monitored by
only one of them, often the agent bank; or an independent entity, often a trustee,
for the benefit of all.
1.16 Banks all over the world routinely syndicate loans. The largest and most conspicu-
ous transactions tend to be international, and are arranged in the principal financial centres of the world; for example London and New York. However, there are
very many domestic syndications as well as international syndications that take
place in other cities. The syndicated loan may combine a money loan, letter of
credit facility, bank guarantee facility, or other credit facility. The money loan may
take the form of a term facility or revolving facility. Indeed, the credit facility
extended by the lenders to the borrower may combine a loan and a bond facility;
11 Also known as primary syndication, true syndication, direct loan syndication, direct
participation, or simple syndicate.
12 In law, the name of the document does not matter as much as its substance. Indeed, many
syndicated credits are known by labels such as revolving facility, etc.
13 RC Tennekoon, The Law and Regulation of International Finance (London: Butterworths,
2006) 45.
22
Description of Multi-Bank Financing Transactions

it all depends on what the borrower needs.14 Figure 1.1 illustrates the syndicated
loan arrangement.
Figure 1.1 The Syndicated Loan

a. Common varieties of syndicated loans
There is a large variety of syndicated loans reflecting the flexibility of the financing
1.17
method in adapting to business enterprise. The following are some of the
common varieties encountered today, and they were selected because they further
describe syndicated loans.
i. Domestic versus euroloans There is perhaps not much difference in the
1.18
reasons for, and the structures used in, domestic and euroloans. However, the
mindset and many practical considerations are different. Domestic loans tend
to be smaller, and will usually involve fewer banks than euroloans. They are also
more likely to be made to leveraged borrowers, and be secured. The documentation is also likely to be easier since most parties are resident in one jurisdiction.
Perhaps the most important factor that influences the documentation is the mindset of the funding mechanics. The working assumption in most domestic loans
is that lenders will fund the loan from their depositor base. This influences the
interest rate payable on the loan (which can be a fixed rate), the lead-time needed
for the borrower to make a drawdown (which can be as short as one day), and the
terms of repayment. This contrasts with euroloans, where the working assumption is that the lenders will fund the loan by taking deposits in the interbank
market. This in turn influences many factors, such as the interest rate payable on
the loan (the rate will be fixed at a level above the interbank rate, which usually
fluctuates). The lead time for the borrower to draw on the loan is longer (because
the lenders have to take matching deposits and the agent has to determine the
interest rate), and repayments must coincide with the selected interest periods otherwise the borrower will be liable to pay break costs. The large number of lenders
from different jurisdictions in euroloans also necessarily influences the documentation of the loan to take account of matters such as different taxation regimes.
The relative ease of arranging a domestic loan accounts for the presence of the
14
See ch 4 below on the various credit facilities.
23

swingline facility in many syndicated loans, which is a loan that can be made at
very short notice and acts as a backstop in a syndicated loan facility in case funding
is required sooner than can be raised by conventional euroloan methods.
1.19 ii. Investment grade, leveraged, and middle market syndicated loans
Loans
may be categorized depending on the borrower15 and placed in any of the three
categories of investment grade, leveraged, or middle market. Investment grade
borrowers are those corporations that are highly rated (BBB- or higher by Standard
and Poors, Baa3 or higher by Moodys Investors Service, and/or BBB- or higher
by Fitch Ratings). These companies tend to be large, established, and profitable,
and usually obtain their long-term financing from the issue of bonds or commercial paper, which are cheaper methods for them. However, they borrow by way of
syndicated loans in the form of revolving credit as back-up for seasonal borrowing
needs, backstop commercial paper, or fund acquisitions on a short-term basis.16
Many of the transactions are unfunded credits and are seldom used. For this
reason, most of the lenders income comes from a facility or non-use fee, and the
lenders do not earn much interest income.17
1.20 Leveraged loans are a subset of corporate loans and are those generally with non-
investment grade ratings (BBB- or below). A loan also qualifies as leveraged even
if the borrower is rated investment grade or not rated at all, but the loan is backed
by security and has a spread of Libor +125 basis points or higher.18 These loans are
more risky than the investment grade loans and are sometimes viewed as
speculative-grade instruments. For the higher risk they carry, they also attract
higher yield and attract higher interest rates than investment grade loans.19 The
leveraged borrowers have significantly less access to the public market alternatives,
and thus loans are their best financing alternative. Such loans are made to finance
companies that are making acquisitions or large capital expenditures, refinancing,
or making dividend payments to shareholders. The loans are attractive to the
lenders for several reasons. First, because of the higher interest income and higher
front-end fees, even if the risk of default is higher than for investment grade
loans; this also makes them attractive as a basis for building investment portfolios
in collateralized debt obligations and collateralized loan obligations. Secondly,
because the interest rate is periodically set above LIBOR, it keeps pace with
15 The focus would be on the borrowers credit rating and debt burden, the pricing of the loan,
and the borrowers size.
16 S Miller, Players in the Market in AA Taylor and A Sansone (eds), The Handbook of Loan
Syndications and Trading (New York: McGraw-Hill, 2006), 48.
17 PC Vaky, Introduction to the Syndicated Loan Market in Taylor and Sansone (n 16 above) 45.
18 Miller (n 16 above) 47. A distinction is sometimes made between crossover credits, which are
those just below investment grade rating, and highly leveraged transactions (HLTs).
19 AA Taylor and R Yang, Evolution of the Primary and Secondary Leveraged Loan Markets in
Taylor and Sansone (n 16 above) 22.
24

changing interest rates. Thirdly, such loans are usually secured by the borrowers
assets and are further protected by covenants in the loan agreement. Covenant
protection enables the lenders to monitor the borrowers activities and reset conditions of the loan along the way if the covenants are breached. Collateral protection enhances the chances of full recovery in case of default. As a result, leveraged
loans are more attractive as investments than, for example, high-yield bonds.20
Middle market loans are generally a subset of leveraged loans, and are those made 1.21
to companies whose smaller size limits their access to capital.21 These companies
depend on bank loans as their primary financing. The loans have their own
attributes that set them apart from the larger leveraged loans. First, they are generally smaller-size loans and attract less interest from the larger lenders. They thus
tend to be less liquid and lack a broader following in the secondary market. They
are also more likely to take the form of a club deal loan where a small group of
relationship banks provide the loan.
Tables 1.8 and 1.9 show Global and EMEA syndicated loans split into the two 1.22
categories of investment grade and leveraged lending. The tables show that most
syndicated loans are made to investment grade borrowers, but the share of leveraged lending is also significant.
Table 1.8 Global syndicated loansinvestment grade versus leveraged loans in 2006
Pos.
Deal Type
Deal Value ($) (m)
No
1
2
3
Investment Grade
Leveraged
Highly Leveraged
2,692,913.31
1,035,036.69
274,884.31
6,218
2,167
1,042
Total
4,002,834.32
9,427
% share
67.28
25.86
6.87
100
Source: Dealogic.
Table 1.9 EMEA syndicated loansinvestment grade versus leveraged loans in 2006
Pos.
Deal Type
Deal Value ($) (m)
No
1
2
Investment Grade
Leveraged*
1,063,339.25
423,775.59
1,461
696
Total
1,487,114.84
2,157
% share
71.5
28.5
100
* Highly Leveraged not yet applicable for EMEA. If a deal is considered investment grade or leveraged depends
on the rating of the borrower (IG vs non-IG). In the absence of a rating the pricing determines the status, with
any deal priced 150bp and above considered as leveraged.
Source: Dealogic.
ibid 23.
Generally a mid-market loan is made to a borrower with EBITDA of US$50m or less and
with sales less than $500m. The loans tend to be less than $200m: Miller (n 16 above) 47; Vaky (n
17 above) 45.
20
21
25

1.23 iii. Hybrid loanbond facilities
Some syndicated loans offer the greatest

flexibility to the borrower by providing several options in an omnibus package.
Thus, a syndicated loan may combine some securities and lending methods in
one package whereby a syndicate of banks underwrites a loan facility that is primarily funded by investors other than the syndicate banks. In such arrangements,
the borrower/issuer initially aims at placing the notes (paper) in the market,
usually through a tender panel, or to raise the money by the issue of bonds, or
to get short-term single-currency or multi-currency advances. The syndicate
banks are called upon to take up the notes that are not successfully placed or to
fund the borrower to the extent that alternative methods do not succeed. In an
alternative arrangement, the borrower simply has the option to borrow by way
of bonds or by way of loan, without expressing at the outset which option will
be the preferred one. In addition to the flexibility obtained from the multiple
options, the borrower obtains funds from diverse sources and at short-term rates.
For the banks, lending at short maturities enables them to limit their exposure
to risk and also maintain more liquid portfolios than would be the case with term
loan facilities. The banks that are involved in placing the notes in the market earn
a commission or make a profit, and those that underwrite the facility earn fees for
that commitment.
1.24 iv. Syndicated loans coupled with subordinated debt- mezzanine and high-
yield financing In some larger financing transactions, the syndicated loan

may be coupled with subordinated debt and other types of financing in order
to meet the needs of the borrower as well as potential lenders or investors.
Increasingly, banks structure transactions depending on what the investors want,
and will therefore include tranches with different risk/profit profiles and tenors so
as to appeal to different investors. For example, the financial package would
include the syndicated loan at one end, and equity financing provided by the
borrowers sponsors at the other end. The proportion advanced by the syndicate
lenders, who would often benefit from security, is commonly referred to as senior
debt and has the benefit of being most assured of repayment of the loan. The
equity providers enjoy the potential to benefit from capital appreciation, but take
the greatest risk as regards the borrowers financial situation. In between senior
debt and equity would be subordinated debt or intermediate capital, which takes
different forms. One common form, historically more prevalent in Europe, is
mezzanine financing,22 which typically benefits on a subordinated basis from the
same security and guarantees as senior debt. The attraction of mezzanine financing is the contractual protections afforded to the lenders. Mezzanine has longer
maturity, say ten years, attracts a high interest rate, for example LIBOR plus 8 to
10 per cent, and has some restrictions on pre-payment such that it attracts
22
Mezzanine is viewed as lying between debt and equity in terms of risk and return.
26

prepayment fees. The investors in mezzanine financing tend to be banks which
buy and hold debt instead of trading it. The alternative form of intermediate
capital, historically more prevalent in the United States, is high-yield bond financing.
This is a bond facility and has the advantages of lower cost, greater covenant
flexibility, and liquidity. In practice, high-yield financing is not very common
any more, but its attractions are still utilized in some more popular structures. In
recent years there has been a convergence of mezzanine and high-yield features,
with the result that in Europe there are more high-yield bond structures that take
advantage of the contractual protections given by mezzanine financing.23 A more
recent development that is still growing is second-lien financing, which ranks
after senior debtbut is not structurally subordinatedand above mezzanine
debt. The tenor is typically shorter than mezzanine, say nine years, would have the
same financial covenants as senior debt, and attract a higher interest than senior
debt, say Libor plus 5 per cent. Typically the buyers of second liens are funds
and not banks. The legal aspects of these structures have not been tested and
there is very little history of workout situations in Europe. They nonetheless
present diverse opportunities for investors both in distressed and normal
situations. Figure 1.2 illustrates a financial package with tranches that include a
syndicated loan, intermediate capital, and equity financing.
Figure 1.2 Syndicated Loans and Intermediate Capital

v. Loans sold down as part of primary syndication A prominent feature of the 1.25
syndicated loan market in recent years is that many large deals are underwritten
by one bank or a small group of banks and sold down later as part of the primary
syndication.24 The purchaser institutions sign the original syndicated loan
23 DA Brittenham et al, High-yield Financings: Recent Structural Developments in The

Euromoney Syndicated Lending Handbook 2004.
24 It is important to avoid front running, which is a practice where a lender sells its commitment
in the secondary market before the primary syndication is complete.
27

documents and include different types of financial institutions in addition to
banks. Through this development and the secondary market practices, non-bank
financial institutions hold an increasing proportion of syndicated loans. This is
a very important development that has significant procedural, practical, and legal
implications. First, the mandate and the documents that follow it need to anticipate a sell-down to different types of financial institutions in the primary
market. It may be necessary to obtain a rating for the loan because such is a requirement for the investment by a number of non-bank financial institutions. The loan
structure may need to be delivered in tranches to appeal to a variety of investors,
and the transfer language of the loan may need to be very flexible from the outset
so as to appeal to different investors. The participation of non-bank financial
institutions also increases the liquidity in the market. It also makes deals complete
faster. Whereas the banks may need days or weeks to complete a credit assessment
of a particular loan, some non-bank institutions can provide money in a much
shorter time, thus presenting a direct challenge to bank financing. The involvement of non-bank financial institutions may also affect the character of lending
generally. In cases where the borrower has difficulties, the non-bank lenders may
be less accommodating than the banks are known to be.
b. Niche-market syndicated loans
1.26 Some syndicated loans entail unique structures or arrangements because of the
underlying business which they finance. Some examples in this category are loans
used in mergers and acquisitions, project financing, shipping, oil drilling, seafood
production, and commodity and trade financing. Two examples illustrate.
1.27 i. Syndicated loans used in mergers and acquisitions
Each M&A deal is

uniquetheir main general features are, however, complexity, speed, confidentiality, and the use of back-up facilities. The complexity arises due to a number of
factors. The first set of factors relate to the acquiring company, its business operations, and the way in which it is funded. Often the acquiring company is a large
conglomerate consisting of a group of companies with business operations in
different geographical regions. It would often designate one of the entities within
the group as the senior borrower and intending purchaser of the target company.
The financial interrelatedness between the group of companies would remain,
however, with the group members giving one another financial assistance, crossguarantees, possibilities of set-off, and loan related possibilities such as crossdefault. The second set of factors relate to the target company, its business
operations, and the way in which it is funded. The target company itself may
consist of a group of related companies with global operations and complex
financial arrangements. The acquiring company may take over all or only part of
the target group of companies, and the standing financial arrangements for the
28

target company would need to be streamlined to fit into the acquisition model.
The third set of issues arises from the financial arrangements. First, it is a requirement of mergers and acquisitions transactions that the intending acquirer should
have concluded the financial arrangements for the takeover. This is the certain
funds requirement, which obliges the intending acquirers to have committed
funds, usually in the form of back-up facilities and the financial readiness to complete the transaction if the commercial aspects should succeed. Secondly, the
acquiring company needs to arrange term and revolving facilities, including
overdraft facilities, guarantees, bonds and letters of credit to finance the takeover
of the target company, and also needs to look at the post-acquisition stage to the
financing of the new merged entity. This could involve paying off some debt for
the target company as well as working capital for the entire group. Finally, the
financial arrangements would need to be structured to meet the needs of the
borrower as well as the different types of lenders and investors; and will therefore
include senior loan facilities (including alphabet loans and revolving loans),
second lien loans, and mezzanine or high yield loans. All of these arrangements
would need to be put together confidentially and with speed. The interplay of
these relationship and facilities is illustrated by Figure 1.3 below.
ii. Syndicated loans used in project financing In the category of syndicated
loans used for project financing, the financing structure has unique features
because of the way in which it relates to the borrower and other structures and
the location and complexity of the project. While there is no uniform definition
of project financing, and the projects differ greatly in size and industry, project
financing is understood to mean the financing of long-term infrastructure,
industrial projects, and public services based upon a non-recourse or limited
recourse financial structure where project debt and equity is used to finance
the project and the lenders are paid back from the cashflow generated by the
project.25 Common large projects include power generation, pipelines, transport
systems, mining facilities, industrial and heavy manufacturing plants, and telecommunications infrastructure; and small projects include schools and healthcare facilities.26
International Project Finance Association (IPFA) website at <http://www.ipfa.org>.

According to the World Bank, financial institutions provided US$969,432m in project
financing between 1990 and 2005: <http://ppi.worldbank.org/explore/ppi_exploreRankings.
aspx>.
25
26
29
1.28
Figure 1.3 Syndicated Loans in Mergers and Acquisitions

Source: LMA website.
30

Project financing is notoriously complex,27 usually involves sensitive issues,28 and 1.29
is often in challenging locations. It has nonetheless flourished over the years as a
distinct type of financing because it has several advantages for all the parties.29
First, from the business viewpoint most of the projects, especially those in
developing countries, have a state offtaker. Secondly, there are other economic
reasons, such as tax advantages, protected margin, and off-balance sheet treatment, that justify long tenors of debt, ie average tenor is twenty to twenty-five
years.30 Perhaps most importantly, there is a comprehensive structure and
risk allocation.31 The project ensures that the structure is in place, there is a
product, and a taker of the product. The main advantage from the legal and documentation angle arises from the non-recourse or limited recourse nature of project
financing. This feature is not inherent in project financing but is a key attraction
and therefore always contracted for. Non-recourse means that the repayment to
the lenders is derived from and limited to the revenue generated by the project
itself; while limited recourse means that the repayment obligation is limited to the
27 It is estimated that a large project financing may involve about 15 parties and approximately
40 contracts. The contracts may include construction contracts, equipment contracts, labour
contracts, independent feasibility studies, supervision agreements, power and water supply agreements, and insurance policies. The multiple participating entities are united by a common financial
interest, but they obviously have divergent interests that have to be carefully managed for the success
of the entire project and for its whole lifetime. See eg B Esty, Modern Project Financing (Chichester:
John Wiley, 2006) ch 1; J Dalhuisen, Dalhuisen on International Commercial, Financial and Trade
Law (Oxford: Hart, 2nd edn, 2004) 95; RE Akbiyikli, D Eaton; and AL Turner, Project Finance
and the Private Finance Initiative (PFI) (2006) 12(2) Journal of Structured Finance; C Wright
and A Rwabizambuga, Institutional Pressures, Corporate Reputation and Voluntary conduct: An
Examination of the Equator Principles, (2006) 111(1) Business and Society Review 97.
28 eg environmental issues and social issues: see ch 11 below.
29 The most visible parties in any deal are the following: (1) The host government: this is the
government of the country in which the project is being constructed. It usually has a keen interest
in the success of the project in terms of providing some social or economic infrastructure. (2) The
sponsors: these are the investors and managers of the project. They usually make an equity investment, assume most of the risk, and stand to profit if the project succeeds. (3) The lenders: they
are usually financial institutions, of which the most visible groups are the commercial banks. They
lend funds and take security over the project assets. There may also be export credit agencies and
multilateral institutional lenders. (4) The project entity: usually called the SPV or SPE.
30 In 2000, 26% of project financing was for 15 years or longer. In 2006, 40% of project
financing is for 15 years or longer. In PPP and PFI it is 25 years or longer.
31 Any single project involves a number of risks such as completion risk, operation risk, revenue
and price risk, political risk (interference or expropriation), environmental and social risk, and legal
risk. The project sponsors and lenders identify, assess, and quantify such risks and allocate them to
the party best equipped to manage the risk, thus improving the possibility for success of the project:
See eg PR Wood, Project Finance, Subordinated Debt and State Loans (London: Sweet & Maxwell,
1995) 17; A Fight, Introduction to Project Finance (London: Butterworths Heinemann, 2005)50;
JD Finnerty, Project Financing: Asset Based Financial Engineering, (Wiley, 2nd edn, 2007) xx; D
Blumental, Sources of Funds and Risk Management for International Energy Projects (1998) 16
Berkeley Journal of International Law 271; W M Stelwagon, Financing Private Energy Projects in
the Third World (1996) 45 Catholic Lawyer 37; Akbiyikli, Eaton, and Turner (n 27 above); AO
Vega, Risk Allocation in Infrastructure Financing (1997) Journal of Project Finance 38; M Sorge,
The Nature of Credit Risk in Project Finance (December 2004), BIS Quarterly Review.
31

project and certain identified and usually limited assets rather than the sponsors.32
Thus, the lenders may neither sue the sponsors on the personal covenant to
repay the debt nor look to the assets beyond the project assets. The lenders only
remedy for non-payment of the project debt is the enforcement of the security,33
except where there has been a non-observance of the sponsors obligations in
the project documents.34 The non-recourse feature of project finance loans is
generally achieved by the establishment of a special purpose vehicle (SPV) or
special purpose entity (SPE),35 which is created and designed to be separate from
the project sponsor. The SPV is designed to construct, own, and operate the
project. It holds all project assets and its business scope is usually limited to the
project alone. The SPV enables the project sponsors to isolate the project from
the sponsors other businesses, with the consequence that any failure or other
financial difficulty of the project does not directly damage the sponsors financial
condition.36 In turn this enables financial institutions to participate in high-risk
transactions without diminishing their creditworthiness or financial stability.
1.30 In a syndicated project financing, the borrower will typically be the SPV. The
total finance package may consist of the syndicated loan provided by the financial
institutions and credit extended by other creditors (for example trade creditors),
as well as equity from the project sponsors. Many projects, particularly those in
developing countries and challenging locations, also usually involve export credit
agencies and multilateral institutional lenders. The syndicate lenders look for
payment exclusively from the SPV, but also have the benefit of security, guarantees
and other structural enhancements (in the case of limited recourse loans).37 The
simplified diagram in Figure 1.4 illustrates the relative position of the syndicated
loan in project financing.
32 This distinguishes project finance from corporate finance, where the obligation to repay the
loan is backed by a sponsoring company and its entire balance sheet.
33 The project is structured so that other creditors may not look to the project assets for the
repayment of separate, non-project debt.
34 G Vinter, Project Finance (London: Sweet & Maxwell, 2nd edn, 1998) 111.
35 SPV and SPE are interchangeable. SPE is more commonly used in the US while SPV is more
commonly used in the UK.
36 Blumental (n 31 above) 270.
37 N Nassar, Project Finance, Public Utilities and Public Concerns: A Practitioners Perspective
(2000) 23 Fordham International Law Journal 60.
32
Figure 1.4 Syndicated Loans in Project Financing

Source: Handbook of Loan Syndications.
2. Club Deal Loans

There is no financing structure universally acknowledged to be the club deal 1.31
loan. The phrase denotes a miscellaneous category similar to the syndicated loan.
Club deal loans usually involve fewer bankssay two to fivethan syndicated
loans, which usually have a larger number of bankssay twenty to thirty, although,
on occasion, hundreds of banks have been involved.38 Alternatively a club deal
may be categorized as such because of the smaller loan amount, say US $25 million to $100 million that is pre-marketed to a group of relationship banks.39
Sometimes the club deal is a bridge to a larger loan, whereby a few banks, with
which the borrower has an existing relationship, arrange bridge financing. At
other times the club deal loan is all that is contemplated. The borrower may itself
arrange the club loan.
Taking a global view, there are two common meanings of a club deal. According 1.32
to one meaning, a club deal is essentially the same as a syndicated loan except that
there is no general syndication of the loan. The few banks that obtain the borrowers mandate, or those that are put together at the outset, sign the same syndicated
loan agreement, provide the funding, and hold on to their loan commitments.
38 One cannot over-generalize: a typical syndication in London would consist of 2030 banks;
the Eurotunnel project involved 220 lenders.
39 See eg Taylor and Sansone, (n 16 above) 49.
33

It is similar to a private placement in this respect.40 Tables 1.10, 1.11, and 1.12
below show comparative figures for club deals for the years 200406 in three
respects: (1) club deals as a proportion of total global syndicated loans; (2) club
deals as a proportion of total syndicated loans in EMEA; and (3) the top countries
for club deals.
Table 1.10 Club deal loansproportion to global syndicated loans, 20042006
Club Deals
Total
% of Clubs
Credit Date
by Year
Deal Value $ (m) No
Deal Value $ (m) No
Deal value $ No
2004
2005
2006
Total
2,620,185.84
3,456,330.03
4,002,834.32
10,079,350.19
8%
7%
6%
7%
210,776.00
250,610.24
259,645.57
721,031.81
503
587
574
1,664
6,716
8,649
9,427
24,792
7%
7%
6%
7%
Source : Dealogic.
Table 1.11 Club deal loansproportion to EMEA syndicated loans, 20042006

Club Deals
Total
% of Clubs
Credit Date
by Year
Deal Value $ (m) No
Deal Value $ (m) No
Deal value $ No
2004
2005
2006
171,426.17
190,513.01
200,931.79
313
345
340
951,739.11
1,426,518.65
1,487,114.84
1,752
2,143
2,157
18%
13%
14%
18%
16%
16%
Total
562,870.97
998
3,865,372.59
6,052
15%
16%
Source : Dealogic.
Table 1.12 Top countries for club deal syndicated loans, 20042006
Pos.
Deal Nationality
Deal Value ($) (m)
No
1
2
3
4
5
United Kingdom
France
Spain
Australia
Netherlands
Subtotal
149,826.55
95,389.67
73,459.19
71,379.44
34,720.82
424,775.67
225
68
175
199
44
711
Total
721,031.81
1,664
%share
20.78
13.23
10.19
9.9
4.82
58.91
100
Source : Dealogic.
40 T Rhodes (ed), Syndicated Lending: Practice and Documentation (London: Euromoney,

4th edn, 2004) 198.
34

The second meaning of a club deal loan, less common in the United Kingdom and 1.33
the United States,41 is one in which the banks act in a loose association to make
parallel bilateral loans simultaneously to the borrower. Each loan is a discrete,
single-lender transaction, even though the borrower commonly negotiates the
loans on the basis of a single loan document. A borrower opts for a club deal
facility usually because it already has established relationships with several banks
and would like to borrow from them separately. Sometimes the borrower hopes
to negotiate more favourable terms if it approaches the banks separately, or hopes
to get a cheaper loan by playing the banks against one another.42 Figure 1.5
illustrates this type of club deal.
Figure1.5 The Club Deal Loan (Alternative Meaning)

The banks that agree to lend by way of the second type of club deal typically 1.34
make it a condition of their loans that there should be an inter-creditor agreement
providing for cooperation in several areas that are important to them. In particular they agree to receive payment from the borrower in proportion to the loans
advanced, and to share rateably any proceeds realized from the loans in other ways
such as set-off or the realization of collateral. They also agree to a set procedure
to be followed before making a demand on the loans or realizing collateral, and
to exchange information concerning the borrower. In addition, they agree among
themselves not to assign an interest in the loan to a person who has not agreed to
be bound by the inter-creditor agreement.43 The cooperation provisions of an
inter-creditor agreement are very similar in form and substance to those found in
syndicated loans; they emphasize collective action and the avoidance of competition in making collections from the borrower. The mindset in a club deal loan
is different, though. The banks involved deal closely with each other and have to
agree on every material thing. This contrasts with the syndicated loan where the
At least in the past this meaning applied in Canada and Australia.

JA Levin, Multi-bank Financings in Negotiating and Drafting Commercial Bank Documents
(Toronto: Insight, 1987) TAB IV, 2; PH Harricks, Legal Aspects of Multi-lender Financing (1991)
8(3) National Insolvency Review 40, 43.
43 Levin (n 42 above) 29; Harricks (n 42 above) 445.
41
42
35

majority rules, and the banks on the periphery may not get much say in the loan
documentation or, later on, the crucial decisions.
B. Secondary Loan Market Practices

1.35 Secondary loan market practices are those where the original syndicate member
passes to another party an interest in its loan, or engages in any subsequent

transaction in relation to the loan interest.44 Through this market, the syndicate
member/lender or investor is able to sell the whole or part of a loan to other lenders or investors, or may engage in other transactions in relation to the same loan.
Any lender or investor is also able to buy or acquire interests in other loans to
supplement its existing portfolio. The traders, investors, and lenders who acquire
interests in the secondary market provide capital, thereby performing an important function of adding liquidity in the overall loan market.45 The continuous
development of this market means that trading or other dealing in syndicated
loans is now a common feature of the financial markets. Borrowers have increasingly accepted that their loans will be assigned or transferred, and increasingly
the loans are acquired as investments by institutional investors46 and a vast array
of financial institutions. Secondary market practices are legally effected by novation (which is the method primarily used in England), assignment (in this book
also called loan participation), declaration of trust, and sub-participation. These
methods are considered in detail in chapter 8 below.
1.36 The secondary loan market has existed since the 1980s (even though not neces-
sarily under that label), and has evolved from occasional transactions negotiated
and sold on an ad hoc basis to commoditized transactions sold on the basis of
standard documents. To date, the most common secondary market practices in
London are sub-participation, loan trading, credit derivatives, and collateralized
debt obligations. They were preceded by practices that have all but disappeared in
London but are used in some form or other in other parts of the world.47 A brief
study of some of the earlier practices illuminates current efforts at standardization,
and brings home the message of continuous development of financial practices.
44 The wider expression secondary debt market includes bonds, loans, letters of credit, and
promissory notes.
45 Accord, Argo Fund Ltd v Essar Steel Ltd [2006] 2 All ER (Comm) 104, 120 (CA) per Rix LJ.
46 In the US, institutional investors have held 4050% of syndicated loans since at least the turn
of the century. In Europe at the turn of the century they held only a 23% share of the loans, but in
2006 their share in addition to that of hedge funds is estimated to be approaching 50%: See G Tett,
Hedge Funds move on Corporate Loans Financial Times, 11 May 2006.
47 Transferable loan instruments (TLIs), transferable loan certificates (TLCs), revolving underwriting facilities (RUFs), transferable revolving underwriting facilities (TRUFs), etc. Rhodes (n 40
above) 17; earlier editions of the book carried detailed analysis of these disappearing practices.
36

It also puts in context the harmonization efforts of the LMA, LSTA, APLMA, and
bodies with similar aims.
1. Loan Participation and Loan Sub-participation: Early Differences between
New York and London Practices
A bank can grant a participation in its loan and thereby engage in a secondary loan 1.37
market practice. While this is the simplest secondary loan practice, the preferred
method of going about it has traditionally been different in New York and London.
In the early phases of the secondary loan market in the United States,48 the dominant method by which banks transferred interests in their loans to other banks was
by way of a sale or assignment of the debt.49 In most instances the assignment was
not notified to the borrower and was for only a part of the loan.50 The consequence was that the initial lender remained the lender of record and there was
no direct legal relationship between the borrower and the participant. A further
progression of this practice was the assignment and acceptance agreement,51 by
which the original lender relinquished its rights and obligations under the loan
and a direct legal relationship was created between the borrower and the participant. The assignment and acceptance agreement is now the favoured secondary
market method among the dominant and most frequent users of loan trading
in New York. In England, on the other hand,52 the early phases of the secondary
market did not use the assignment of loans because of the constraints of the
assignment method. The main reasons were that first, assignments attracted stamp
duty,53 and secondly the major borrowers successfully objected to the assignment
of their loans. As a result, the original lenders used sub-participations, whereby
they accepted deposits in their own names from other financial institutions and
promised repayment by reference to a cashflow received from the borrower. In due
course, the London international financial market developed two methods for
transferring large loans: the transferable loan instrument, which was based on the
principle of assignment; and the transferable loan certificate, which was based on
the principle of novation. The concepts of these two methods, particularly the
transferable loan certificate, are the predecessors of the modern secondary loan
market method of loan trading, which is based on the principle of novation.
The same was true for Canada, Australia, and South Africa.
In England these transactions would have been accomplished under the Law of Property
Act 1936 which provides for the conditions of the legal assignment.
50 Under English law this would be an equitable assignment.
51 New York law does not have the concept of novation as English law does. The effect of a
novation is achieved by a legal transaction called an assignment and acceptance agreement.
52 The same was true for New Zealand.
53 This no longer applies.
48
49
37

2. Loan Sub-participations54
1.38 A sub-participation is a popular method of raising funds by the lead bank. It is a
back-to-back loan whereby the sub-participant lends to the lead bank on terms
that the sub-participant will be repaid only if the lead bank is repaid by the underlying borrower.55 The lead bank grants to the participant rights over, or an interest
in, the loan. This involves the creation of new rights and obligations between the
lead bank and the sub-participant, rather than the transfer to the participant of
the lead banks rights and obligations vis--vis the borrower. The sub-participant
does not become a party to the loan agreement, and cannot therefore enforce or
get the benefit of the terms and conditions of the loan agreement. As such, the
sub-participation is a limited recourse funding to the lead bank, which obtains
funds from the participant but is not obliged to repay the loan until it has received
payment from the underlying borrower. The same arrangement may alternatively
be seen from the sub-participants angle as the placement of funds with the
lead bank in return for an undertaking to receive a stream of income that is measured by reference to the funds that the borrower repays the lead bank. Such a
scheme is legally valid because the law allows loan contracts that are repayable
on the happening of a contingency.56 However, the sub-participant is exposed to
a double credit risk. First, the borrower may default to the lead bank, and
secondly, the lead bank may default to the sub-participant. Figure 1.6 illustrates
the sub-participation.
In some other literature these are called participations or funded sub-participations.

Lloyds TSB v Clarke [2002] 2 All ER (Comm) 992, 997 (PC) per Hoffmann LJ;
Interallianz Finanz AG v Independent Insurance Co Ltd [1997] EGCS 91 (Ch), D Warne and N
Elliott, Banking Litigation (London: Sweet & Maxwell, 2005) 160; PR Wood, International Loans,
Bonds and Securities Regulation (London: Sweet & Maxwell, 1995) 11011; GA Penn, AM Shea,
and A Arora, The Law and Practice of International Banking (London: Sweet & Maxwell 1987)
147; M Allen, Asset SalesAn Analysis of Risk for Buyers and Sellers [1987] 1 JIBL 13, 14;
M Bray, Developing a Secondary market in Loan Assets International Financial Law Review,
October 1984, 22, 23.
56 See eg Waite Hill Holdings Ltd v Marshall [1983] 133 NLJ 745 (QB).
54
55
38
Figure 1.6 The Loan Sub-participation

Since the loan agreement between the borrower and the lead bank is entirely 1.39
separate from that between the lead bank and the sub-participant, the subparticipant does not acquire any legal or beneficial interest in the underlying debt
and, consequently, does not have any enforceable rights against the borrower.57
The sub-participant merely has an unsecured contractual claim against the
lead bank, but cannot maintain a legal or equitable claim against the underlying
borrower. This, in turn, means that the sub-participant runs a double credit
riskthat either the lead bank or the underlying borrower will not be able to pay
when it is required to. Moreover, the sub-participant generally does not acquire
the right to participate in the management of the underlying loan.58 However, if
it sub-participates in the whole loan, then it usually negotiates for and obtains
some control of the loan. A sub-participation is particularly appealing where
the loan agreement between the lead bank and the borrower restricts the lead
banks power to assign the loan. A sub-participation does not infringe such a
restriction since the lead bank borrows from the sub-participant, and does not
grant to the sub-participant any interest in the underlying loan. It can, therefore,
be used to liquefy the lead banks loan asset while, at the same time, keeping the
transaction between the lead bank and the sub-participant a private matter
between themselves.
57 Lloyds TSB v Clarke (n 55 above) 997 (PC) per Hoffmann LJ; Warne and Elliott (n 55 above)
160; Wood (n 55 above) 11011; Allen (n 55 above) 14.
58 Bray (n 55 above) 23.
39

3. Loan Participations59
1.40 In a loan participation, as it is generally understood in USA, Canada and Australia,
a bank transfers undivided interests in its loan (or the commitment to lend)
to other banks.60 The borrowers loan contract is only with the original lender.
This lender, the lead bank, then acts in its own interest and on its own behalf
to induce other banks (the participants) to acquire interests in undivided parts of
the loan. Only the original lender holds legal title to any security taken for the
loan, even though the lenders that subsequently acquire portions in the loan own
equitable interests in the security.61 Figure 1.7 below, illustrates the participation
arrangement:
Figure 1.7 The Loan Participation

b. Differentiation between types of loan participation
1.41 A review of the practices that have been called participations reveals different
sub-categories. Understanding the different sub-categories is important because
current practice evolved from the various sub-categories and their study illustrates
the different legal relations intended by the parties. Because participations and the
underlying loans take place between parties with widely varying interests, there
are many sub-categories62 which reflect the diversity in business deals. This section will discuss some factors that can be used to differentiate between loan
participations.
59 This is also called asset sale, assignment, the participation syndicate, or indirect
participation.
60 This would be an equitable assignment under English law. See eg US cases on loan participations in ch 6 below. Re Canadian Commercial Bank; Canadian Deposit Insurance Corporation v
Canadian Commercial Bank [1986] 5 WWR 531, 533ff. (Alberta QB).
61 AL Armstrong, The Developing Law of Participation Agreements (1968) 23 Business Lawyer
689, 6923.
62 D Scholl and TL Weaver, Loan Participations: Are they Securities? (1982) 10 Florida State
University Law Review 215, 225.
40

i. Method of transferring an interest Loan participations may be differenti- 1.42
ated on the basis of the legal method by which the lead bank transfers an interest
in the loan to the participants. This is of paramount importance in determining
the legal relationship between the parties involved, ie between the borrower
and the banks, and between the banks themselves. For instance, a transfer that is
effected by an assignment will result in legal relations that are different from those
that result from a transfer effected by a novation. Where an assignment is used, the
lead bank assigns its rights, but not its obligations, to the participants. The lead
bank thus remains responsible for performing the loan obligations, such as funding the loan, towards the borrower. In contrast, a novation results in a substitution
of the participant for the lead bank vis--vis the borrower for both the rights and
obligations of the loan.63 In such a situation, the participant would be responsible
for funding the loan as well. These distinctions are further discussed in chapter 8
below.
ii. True versus quasi participations The distinction between true and quasi 1.43
participations was made in North American practice a few decades ago
and it could be that a parallel development has recently occurred in Europe. The
distinction depends on the point in time at which the participants join the arranger
or lead bank in making the loan. In the true participation, which comprises the
majority of cases, the lead bank, acting alone and in its sole interest, makes a loan
to the borrower, and later transfers all or a portion of the loan to other banks.
In the quasi participation, the lead bank forms the participation group after
identifying the borrower but before making the loan.64 In the quasi participation,
the lead bank acts more or less like the participants agent. The participants may
have a say on the loan structure and documentation, even though the borrower
deals only with the lead bank. The distinction between true and quasi participations may have important implications, for example, for the relationship
among the banks. For instance, in quasi participations, there can possibly be an
argument that the lead bank is an agent for the banks.65 These arguments do not
carry much weight in true participations.66 The parallel development in Europe
is one where the bank underwrites a loan and later sells it down as part of the primary syndication.67
The legal features of assignment and novation are presented in ch 8 below.

WC Tompsett, Interbank Relations in Loan Participation Agreements: From Structure to Work
Out (1984) 101 Banking Law Journal 31, 32; EG Behrens, Classification of Loan Participations
following the Insolvency of the Lead Bank (1984) 62 Texas Law Review 1115, 1120, n31.
65 Another, less plausible argument, at least in the UK context, is that the banks are engaged in a
joint venture. See JD Hutchins, What Exactly is a Loan Participation? (1978) 9 Rutgers-Camden
Law Journal 447, 475.
66 J Ziegel, Characterization of Loan Participation Agreements (1988) 14 Canadian Business
Law Journal 336, 3402.
67 On loans that are sold in primary syndication, See 1.25 above.
63
64
41

1.44 iii. Funded versus risk participations
In a funded participation, the participant

places with the lead bank its proportionate share of funds (the participation) either
at the time it acquires an interest in the underlying loan, or contemporaneously
with the lead bank disbursing the funds to the borrower.68 In a risk participation,
on the other hand, the participant contractually commits itself to bear part of
the loss if the borrower defaults in repaying the lead bank. It is only after the
borrowers default that the lead bank obtains the participants funds.69 The participants obligation may take the form of a guarantee or an indemnity that runs
in favour of the lead bank.70 Whereas the participant earns a participation fee in
both funded and risk facilities, it is required immediately to contribute funds in a
funded facility. In contrast, it is only required to give a contractual commitment
to pay in the case of a risk facility. Risk participation is the basis for syndications
of letters of credit and some types of bank guarantees.
1.45 iv. Recourse versus non-recourse participations
Though the distinction is not

made in practice in England today, it is important to note that participations may
be sold with or without recourse to the lead bank.71 In the recourse situation, the
lead bank adds its own undertaking to pay the participant even if the borrower
does not make any payments. Participants that have rights of recourse essentially
have the lead banks guarantee that they will recoup their outlay from the participation relationship. Even though such a guarantee is only as good as the bank that
gives it, it is usually substantially better than the non-recourse situation. In the
non-recourse situation the participant solely relies for payment on the borrowers
repayments to the lead bank. The ability of the participant to have recourse to the
lead bank may be of some significance, particularly where the legal nature of the
relationship between the lead bank and the participant is in issue. A participation
sold with recourse to the lead bank arguably points to a relationship whereby the
lead bank can be deemed to have borrowed from the participant in order to finance
the underlying borrower. See further chapter 6 below on the debt theory: debtorcreditor relationship.
1.46 Participations may be sold with or without extensive representations and warran-
ties given by the lead bank and this raises the question of whether the lead bank
guarantees payment. The representations and warranties are normally made in
order to induce potential participants to acquire interests in the loan. The lead
Norton Rose, Selling Loan Assets Under English Law: A Basic Guide (May 1986) IFLR 27.
ibid.
70 ibid.
71 Because the regulatory and accounting treatment of loan transfers is crucial to banks,
participations (in the sense of a sale of a loan) with recourse are nearly extinct. Most banks would be
looking to achieve off-balance sheet treatment for capital adequacy purposes and a sale with recourse
does not achieve that objective. The effect of a participation with recourse, however, is to equate the
transaction to a borrowing by the lead bank.
68
69
42

bank may make extensive representations that, for example, it has good title to the
underlying obligation and any collateral securing the same and has the right to sell
and assign its interest therein. The question that arises is whether such extensive
representations give the participants a basis for recovering against the lead bank
if the participants should lose money from entering into the loan. Arguably, some
of the representations and warranties are drafted in language that is broad enough
to make the lead bank the guarantor for the participants funds.
v. Participations in the loan versus proceeds of the loan The lead bank may 1.47
transfer to the participant different interests depending on what it intends to
accomplish. The lead bank usually transfers an undivided or a fractional interest
in the loan, or the note or certificate evidencing the loan. Such a transfer gives the
participant an interest in the chose in action embodying the lead banks legal
rights. If the loan is secured, the transferee of an interest in the loan would have
some rights in the collateral for the loan. Alternatively, the lead bank may transfer
to the participant only the proceeds of the loan. The transferee of only the
proceeds of the loan would not have rights in the collateral for the loan.
vi Participations in different loan assets Participations may also be distin- 1.48
guished on the basis of the loans that have been the subject of participations. The
subject of many of the participations has been a single loan already made by the
lead bank to the borrower. Where there is an on-going participation relationship
between the lead bank and the participant, the latter acquires an interest in one
loan at a time. In other instances, however, the lead bank may grant a participation
in several specific loans, or in a pool of loans that are not individually identified
to the participant. These differences may result in different risks of loss to the
participant and also different legal consequences. For example, a participant that
acquires an interest in diverse loans normally faces a lesser risk of loss than one
that acquires an interest in only one loan. Participations in pools of loans have
developed into more complex secondary loan market arrangements.
vii. Active versus inactive participants The participants may have widely 1.49
varying powers in relation to the underlying loan. On the one hand, they may
have very limited powers right from inception whereby they may not have the
information or the means to verify the information supplied by the lead bank.
This situation may subsist for the entire duration of the participation relationship
in which the participants have very little access to information regarding the
borrower and no active role to play in the underlying loan. On the other hand, the
participants may have extensive powers such as the right to require that the lead
bank must seek their consent before the lead bank modifies any of the terms of
the loan or before it accelerates the loan or forecloses on the security. The typical
participation agreement leans heavily in favour of lead bank control of the
underlying loan. It is advisable, however, for the participant to negotiate for
43

some control, especially where it has participated in a substantial proportion of
the loan.
4. Transferable Loan FacilitiesA Historical Note
1.50 Syndicated loans were initially traded as predominantly bank-to-bank transac-
tions. Many syndicated loans in the London financial market contained an inbuilt mechanism that enabled the original lender to transfer all or part of the loan
to another lender or lenders. Transferable loan instruments (TLIs) and transferable loan certificates (TLCs) were the mechanisms that carried out the transfer.
a. Transferable loan certificates
1.51 TLCs were based on the principle of novation. The standard TLC was a certificate
that was appended to a loan agreement that contemplated a transfer by a member
of the syndicate to another bank within or outside the syndicate. Legally, it was an
agreement to effect a future novation.72 It provided that a transfer would be
complete if the certificate was signed on behalf of the transferor and the transferee
and delivered to the agent bank, which was pre-authorized by the borrower and
the other banks to accept it and consummate the transaction by recording it in
the register kept by the agent for the purpose. The certificate could alternatively
be premised on the idea that the agent bank was authorized to sign on behalf of all
the parties and to complete the novation by entering it in the register.73 The result
was to substitute the transferee for the transferor bank as the member of the
syndicate with corresponding rights and obligations vis--vis the borrower and
the other banks.
b. Transferable loan instruments
1.52 TLIs transferred an interest in a syndicated loan using the principle of assignment.
The TLI was a free-standing document that contained the rights and obligations
of each bank that was privy to the syndicated loan, and the corresponding rights
and obligations of the borrower. A bank could obtain separate TLIs for each
repayment period or the loan maturity date. The TLI was transferred by completing an attached form, with the transfer completed when it was recorded in the
register by the agent bank.74 Thereafter, the assignee assumed the rights of the
assignor as provided for by the underlying loan agreement. Because the TLI
was conceptually an assignment, it could only legally transfer the rights but not
the obligations of the lenders. This limited its optimum operation to cases where
Norton Rose,(n 68 above) 28.

AC Cates, Development in International Syndications in JJ Norton (ed) Prospects for
International Lending and Reschedulings (New York: Matthew Bender, 1988) para 22.04[2].
74 Cates (n 73 above) para 22.04[1]; Norton Rose (n 68 above) 28.
72
73
44

the loan was fully drawn such that the assignor did not have further obligations
to the borrower.75
A lender is able to transfer its interest in a loan either physically or in synthetic 1.53
form. The transfer can be made to another bank or financial institution. This is
what is called the secondary loan market and there is exponential growth in the
overall market even though the particular techniques used may experience different growth rates. Chapter 8 below focuses on the secondary market. Brief introductory remarks on the current secondary market methods follow.
5. Loan Trading
In loan trading, the bank sells the loan asset and disposes of its entire interest in 1.54
the loan to another bank or financial institution. Initially, most secondary loan
trading involved distressed debt (trading at less than par); the 1990s saw growth
in par debt trading,76 and nowadays trade is common for both distressed and par
loan trading.77 The market document for effecting a transfer is a transfer certificate and it is based on the legal concept of a novation. A copy of such a document
is reproduced in the schedule to Appendix 1 below.78 Since the late 1990s, industry bodies, particularly the LMA and LSTA, have promoted loan trading and have
been instrumental in developing standardized documentation, codes of conduct,
commoditized loan products, professionalism, and the integration of secondary
loan practices in the general capital markets.79 (See further chapter 8 below.)
Credit derivatives offer an alternative way for a financial institution, such as a 1.55
bank, to transfer credit risk to another party in the same way as a loan subparticipation does. They also offer potential investors an opportunity to obtain
credit exposure to a borrower to whom a loan has been made. A credit derivative
is a transaction where one party agrees to transfer, and another party agrees to
assume, the credit risk referable to a loan, security, or other financial obligation or
in reference to a particular reference entity or obligation. Credit derivatives take
Cates (n 73 above) para 22.04[2]; Norton Rose (n 68 above) 28.

D Rule, Risk Transfer Between Banks, Insurance Companies and Capital Markets:
An Overview Financial Stability Review, December 2001, 137, 139 (Bank of England 2001) Issue
No 11, available at <http://www.bankofengland.co.uk/publications/fsr/2001/fsr 11 cont.pdf>.
77 In Europe, two-thirds of the trade in loans is for par or near par: R Cartledge, A Year in Review
in Euromoney Seminars, 3rd Annual Syndicated Loans Conference, March 2001, London, UK.
78 Because the transfer certificate is based on the principle of novation, it is similar to the earlier
transferable loan certificate.
79 D McGrath, Foreword in Euromoney Syndicated Lending Handbook 2004.
75
76
45

the form of swap or option contracts, where one party pays either a swap payment
or premium in return for a compensatory payment when the credit event occurs
against which it seeks protection.80 Where the derivative is in respect of a loan
transaction, the lender buys protection against the risk that the borrower will
default on its loan.81 Indeed, the most common type of credit derivative is the
credit default swap, through which a bank seeks protection against the risk of the
borrowers default. A credit derivative involves the transfer of economic risk,
rather than legal or equitable title to the assets.82 Like other derivatives,83 any
single credit derivative transaction consists of a set of promises whereby the parties
undertake to exchange future payments contingent upon the future behaviour
of a well-defined variable. The credit derivative seeks to avoid or mitigate credit
risk, ie the risk that the borrower might not be able or willing to repay the loan.84
Credit risk may be counterparty risk, settlement risk, political risk, or sector risk.85
The credit risk assumed may be for the same duration or tenor as the financial
obligation, or for a shorter period. Similarly, a credit derivative may effect a
transfer of all or only part of the credit risk.86
1.56 The facts and decision in the case of Nomura International plc v Credit Suisse First
Boston International87 illustrate the general principle in credit derivatives. Nomura

held bonds issued by Railtrack (a public limited company) at 3.5 per cent and due
in 2009. It wanted to hedge its loss on the bonds, particularly the credit risk of the
issuer. It thus bought from Credit Suisse First Boston (CSFB) as protection seller
protection referable to Railtrack plc in a principal amount of US $10 million.
Nomura paid 0.47 per cent of US$10 million per annum for the protection. The
agreement between Nomura and CSFB identified the credit events upon which
the compensatory payment would be made; namely, in relation to the reference
See further ch 8 below.

A credit derivative is functionally similar to an insurance contract, but is not one: see 8.82
below.
82 Financial Services Authority, Cross-sector Risk Transfers, Discussion Paper (May 2002)
para 3.16.
83 The most common derivatives are based on interest rates, exchange rates, commodity prices,
bond prices, and equity indices. See A Hudson, The Law on Financial Derivatives (London: Sweet &
Maxwell, 2002); Rule (n 76 above) 140; A Mugasha, The Developing Law of Financial Derivatives:
Citibank Canada v. Confederation Life (1998) 13 Banking and Finance Law Review 297316.
84 Any term loan, for instance, a foreign currency loan, inherently includes a bundle of risks,
such as interest rate, currency, credit, funding, prepayment, and legal risks. See S Das, Credit
DerivativesProducts in S Das (ed) Credit Derivatives and Credit Linked Notes (Singapore: John
Wiley & Sons, 2nd edn,) 35; Rule (n 76 above) 139.
85 KA Horcher, Financial Risk Management: A Guide For Financial Managers (Scarborough,
Ontario: Carswell, 1995) paras 1-4 1-5; Rule (n 76 above) 139.
86 PU Ali, Unbundling Credit Risk: The Nature and Regulation of Credit Derivatives (2000)
Journal of Banking and Finance Law and Practice 73, 74.
87 [2003] 2 All ER (Comm) 56 (QB). See also Eternity Global Master Fund Ltd v Morgan Guaranty
Trust Co of New York 2002 US Dist Lexis 20706 and 2003 US Dist Lexis 12351.
80
81
46

entity (Railtrack plc), bankruptcy, failure to pay, repudiation/moratorium, and
the like. A bankruptcy credit event occurred in relation to Railtrack plc while
the protection was in place and Nomura sought to cash in on its protection by
obtaining a compensatory payment in exchange for the bonds. CSFB resisted the
demand on the ground that the bonds in question did not meet the technical
requirements specified in the agreement,88 but the Court held that Nomura was
entitled to succeed. The above transaction (which is a credit default swap)89 can be
presented in diagram form as shown in Figure 1.8 below.
Figure 1.8 Credit Default Swap

Credit derivatives differ from alternative methods of managing risk, for example 1.57
syndicated loans and loan trading, because they allow the holders of financial
assets to unbundle or detach the credit risk from those assets and deal separately
with the credit risk.90 A holder may thus lay off credit risk as if it were a discrete
commodity by transferring the financial asset or disposing of the asset to a third
party, which is different from the holder of the credit risk; whereas in each of the
alternative instances of loan syndication, participation, or trading, the credit risk
remains bundled with the financial obligation, ie the relevant transferee acquires
an interest in the financial obligation as well as assuming the credit risk in respect
of that obligation.
88 The issue was whether the bonds in question were not subject to any contingency as required
by the agreement and the ISDA definitions.
89 See also paras 8.608.64 below.
90 Ali (n 86 above) at 7475, Rule (n 76 above) 139.
47

7. Collateralized Debt Obligations
1.58 Collateralized debt obligations (CDOs) as a financial technique offer financial
institutions, such as a bank, an alternative avenue to engage in dealings concerning loan assets, either as sellers or buyers of interests in loans. CDO is a generic
term that refers to a securitization structure in which the portfolio transferred by
the bank to the investors could consist of loans, bonds, or both.91 A key feature of
CDOs is the tranching of the risk so as to appeal to different investors. The risk of
the portfolio in the SPV is sliced into different classes and the SPV issues various
classes of notes, each with different rights to payment. The lowest or first loss
tranche, structured as debt but commonly referred to as equity, is unrated and
bears the greatest risk. This tranche is akin to a share in that the investor (who may
as well be the originating bank) is not guaranteed a return but rather shares in any
profit or excess that remains after paying higher-ranked securities.92 In contrast,
the senior tranche, which makes up the bulk of the transaction (70 to 90 per cent),
is very highly rated with minimal probability of loss. The senior notes are paid in
priority to other investors, and are entitled to priority payment in case of default
and enforcement.93 The layers between first loss and senior tranches are called
mezzanine and bear moderate risk of loss.94
1.59 In the early development of these structures, a distinction was made between CDO
structures in which the portfolio consists of bonds and were therefore called
collateralized bond obligations (CBOs), and those in which the portfolio consisted of loans, and were therefore called collateralized loan obligations (CLOs).95
Over time, the structures and documentation of the two types converged, and the
traditional distinction between CBOs and CLOs became blurred. Current terminology focuses instead on the purpose for which the CDO was set up and the
method of generating the profit, rather than merely the type of underlying asset.96
CDOs have grown phenomenally since the mid-1990s. They are popular because
they raise funds for the originator, remove loans from the originators balance
91 See B Ratner, Collateralised Debt Obligations (CDOs) in Euromoney Seminars, 3rd Annual
Syndicated Loans Conference, March 2001 London, UK, 3; Rule (n 76 above) 140. Another similar
structure is the collateralized investment obligation (CIO), where the bank securitizes its equity
investments.
92 G Fuller and F Ranero, Collateralised Debt Obligations (2005) 09 JIBFL 343.
93 The payment would rank after priority expenses, such as trustees fees and the fees of other
service providers.
94 Financial Services Authority, Cross-sector Risk Transfers, Discussion Paper (May 2002)
paras 3.9 3.12.
95 J Benjamin, Interests in Securities: A Proprietary Law Analysis of the International Securities
Market (Oxford University Press, 2000) 284; P Ali and M Tisdell, Collateralised Debt Obligations,
With an Overview of the CONDOR Securitisation Programme (2000) 18 Company and Securities
Law Journal 371.
96 Fuller and Ranero (n 92 above) 343.
48

sheet and thereby reduce its regulatory capital, while ensuring that investors are
exposed only to the transferred assets.97 They have been accepted as investment
vehicles to increase assets under management and diversify portfolio type
and quality.98 For a study on bank loans, the relevant sub-category is the CLO.
(See further chapter 8 below.)
As noted in the US case of Re Fitch, Inc, American Savings Bank, FSB v UBS 1.60
Painewebber, Inc:99 [A] CLO is created by aggregating large numbers of commercial debt obligations, dividing the rights to the repayment stream into many
subdivisions, and selling those subdivisions as tradeable securities.100 As such, a
CLO is an asset-backed security and is usually supported by a variety of assets,
including whole commercial loans, revolving credit facilities, letters of credit,
bankers acceptances, and other asset-backed securities.101 Loans are a desirable
asset class for a CDO because they provide diversity and quality.102 Like other
securitization deals, the assets are transferred from the originator to a vehicle,
company, or entity, which then issues securities to investors backed by the
assets in the vehicle, company, or entity. These transactions, however, require the
oversight of an asset manager, unlike self-liquidating vehicles such as other
asset-backed securities.103 The CDO can be illustrated in diagram form as shown
in Figure 1.9 below.
Figure 1.9 Collateralized Debt Obligation

Source: Financial Services Authority.
Rule (n 76 above) 140.

Ratner (n 91 above) 4.
99 2003 US App Lexis 9806 (2nd Cir 2003).
100 ibid 56.
101 A Scheerer, Credit Derivatives: An Overview of Regulatory Initiatives in the US and Europe
[2000] 5 Fordham Journal of Corporate and Financial Law 149, 183.
102 Ratner (n 91 above) 22; Ali and Tisdell (n 95 above) 371.
103 Ratner (n 91 above) 4. There are, however, CDOs that are not actively managed.
97
98
49
V. Multi-Bank Financing Contrasted with Similar

A. Introduction
1.61 There are some financing arrangements that look like multi-bank financing while,
in fact, they are not. This section contrasts multi-bank financing arrangements
with arrangements that are similar. In so doing, it further describes, by a process
of exclusion, multi-bank financing arrangements.
1.62 As a result of the phenomenon of globalization, competition among financial
institutions and the liberalization of the financial environment by regulators,

the modern financial market is characterized by the increasingly sophisticated
requirements of bank clients and intense innovation by financial institutions.
This has resulted in diverse practices and instruments that are similar to those
encountered in syndicated loans and secondary loan market practices. The same
trends have also introduced some modifications to existing syndications and
secondary loan market practice. One such effect is the current trend to transform
loan assets, including syndicated loans, into more liquid securities, which is
usually done by adopting capital market structures such as securitization and
transferable certificates. This enhances the liquidity that enables the generation of
further loans. Furthermore, financial institutions routinely provide new products
and services in order to serve their customers needs better while at the same time
reducing costs and enhancing returns for themselves. These developments have
resulted in many innovations and particular techniques such as securitization
which share many similarities, and at the same time some differences with, syndicated loans and secondary loan market practices. In the wider context, the trends
illustrate that syndicated loans and related methods of financing are not isolated
financial practices but part of a broad range of techniques for sharing or disposing
of credit risk.
B. Multi-Bank Financing Contrasted with Equity Syndications

and Participations
1.63 Syndicated loans and loan participations are credit facilities and do create debt,
and the recipients of the funds are borrowers. The words credit and loan in this
context extend beyond the narrow meaning of direct loans of money to include
other forms of financial accommodation.104 Debt refers to a sum of money that is
104 For a broad definition of loan, see Liberty National Bank v Travellers Indemnity, 58 Misc
2d 443, 295 NYS 2d 983 at 986 (Sup Ct 1986) and Looker v Wrigley (1882) 9 QBD 397, 402.
In practical terms, however, credit means a sum of money that is at a persons disposal.
50
Multi-Bank Financing Contrasted with Similar Financing Techniques

advanced to the borrower.105 It creates a debtor-creditor relationship between
the parties, ie there is a legal obligation on the part of the borrower to repay the
debt and a correlative right on the part of the creditor to enforce payment.106 Debt
normally earns interest which is the charge for using somebody elses funds and
is the remuneration to the one advancing the funds.107 In contrast, there are
syndications and participations that take the form of equity financing. These
constitute money that is invested more or less on a permanent basis; and as equity,
there is no legal obligation to repay the investor. However, the investor obtains
a proprietary interest in the financed enterprise and is entitled to dividends and
capital appreciation.
C. Multi-Bank Financing Contrasted with Capital Market Methods

Capital market methods, when contrasted to bank financing, are debt facilities 1.64
where an intending borrower raises funds by way of instruments in negotiable
form which are issued to a large number of investors who thereby provide the
necessary funds to the borrower/issuer. The debt instruments or securities include
eurobonds, securitization notes, commercial paper and medium term notes,
and derivatives. In the past, syndicated loans and capital methods were clearly
alternative ways for raising debt funding. A potential borrower in need of funds
would choose whether to obtain a bank loan or borrow by way of bonds (capital
market instruments). The two alternatives remain clear and intact, but there
is now regular interaction and significant convergence between them such that
sometimes the distinction is blurred. For example, a borrower may obtain a
syndicated loan with the clear intention that such a loan will be repaid by borrowing by way of bonds and that the same group of banks will assist the borrower
in attaining both types of borrowing. Alternatively, a borrower that sets out to
borrow by way of bonds may first put in place a back-up loan facility. Furthermore,
in the secondary market for loans, what starts as a bank loan may end up being
held by investors as a note, which is a capital market instrument.
105 See Webb v Stenton (1883) 11 QBD 518, 528 (CA) per Lindley J. Debt is a species of property,
even if it requires litigation to reduce it into possession: Ellis v Torrington [1920] 1 KB 399, 411
per Scrutton LJ. As property, therefore, debt can be assigned: Camdex International Ltd v Bank of
Zambia [1998] QB 22, 32 and debt can be traded: Argo Fund Ltd v Essar Steel Ltd [2006] 2 All ER
(Comm) 104 (CA).
106 Mathew v Blackmore (1857) 1 H & N 763, 157 ER 1409.
107 On interest, see AC Gooch and LB Klein, Annotated Sample Revolving Credit Agreement
(Washington, DC: ILI, 3rd edn, 1999) ix, xi.
51
D. Multi-Bank Financing Contrasted with International Bonds/Eurobonds

1.65 Bond issues constitute an alternative to syndicated loans as a means of raising
finance. Bonds are long-term debt securities issued by the borrower to a large
number of investors. They are contractual arrangements in which the original
creditor (the bondholder) extends credit to the borrower (the issuer) who agrees
to repay the debt with interest within a stipulated time. A bond, like a loan agreement, will spell out the rights and obligations of the parties over the life of the
bond. Unlike a loan agreement, however, the bond is negotiable.108 The investors
in a bond issue may be limited in number or, as is usually the case, they may be the
public at large. A borrower that wishes to raise finance by way of bonds issues a
large number of debt instruments denominated in small face values, for example
US$1,000, together totalling the aggregate amount of the required financing.
The instruments are in bearer form and have identical terms, thus allowing the
investor to transfer them with ease at a later date. The investors in the bond
market include banks, insurance companies, pension funds, hedge funds, and
wealthy individuals.109 Bond issues are characterized by the large number of
investors that are usually involved in a single bond issue, some of whom may not
be in a position to evaluate the credit risk and value of the debt securities involved.
The law, therefore, significantly regulates bond issues by subjecting them to the
registration requirements of the securities laws, unless an exemption is utilized.
This means that in the majority of the cases, the issuer is required to prepare and
distribute a formal prospectus.
1.66 From the issuers perspective, the choice between raising finance by way of a bond
issue or a syndicated loan is determined by a variety of factors, such as the overall

cost of the financing, tax considerations, the relationship and flexibility the borrower wants with the lenders/issuers, and whether the issuer is eligible to obtain
funding by way of international bonds.110 Where the issuer/borrower wishes to
have some flexibility with the financing facility, the better choice would be a
syndicated loan which can be tailored to its specific needs. Bond issues tend to be
fairly rigid in their procedures because of the complex marketing procedures
and the requirements of the capital markets.111 Furthermore, the bond market is
an exclusive market that tends to demand a higher level of creditworthiness than
banks. Bonds cannot be used where the requirement for financing is fluctuating,
a role that is best suited for revolving facilities. In contrast, many borrowers can
borrow by way of syndicated loans but the same borrowers cannot issue bonds
108 See generally, Bonds: Financing the Future, available at <http://www.estrong.com/

strongweb/strong/jsp/learn/floor/bd-future.jsp>.
109 Tennekoon (n 13 above) 145.
110 Tennekoon (n 13 above) 146.
111 Wood Law of International Finance (New York: Clark Boardman, 1989), para 9.01[1][c].
52

in the international bond market. Compared to bond financing, bank finance
is advantageous to the borrower because the banks can provide rescue money to a
borrower in financial difficulty, which bond holders cannot do if the borrower has
borrowed by way of bonds. It is also advantageous to the ultimate lenders (the
savers) because banks are better able to monitor the borrower compared to bondholders. Bonds also have advantages over bank loans. They are tradable, and hence
more liquid, and that makes them more attractive to investors than loans. Secondly,
bonds are more flexible on the term for which they are available. They range from
one year to thirty or more years.
Eurobonds, which are a sub-category of bonds, are the parallel instrument to 1.67
euroloans. They have certain features,112 some of which are similar to and others
different from those of euroloans. First, they are issued in a country other than
the country in whose currency the bond is denominated and the country of the
borrowers residence. Secondly, eurobonds are almost always issued in bearer
form and sold simultaneously in various jurisdictions. Thirdly, many eurobonds
are listed on a stock exchange, usually the London or Luxembourg exchanges.
Fourthly, eurobonds are usually unsecured instruments. Fifthly, eurobonds are
usually underwritten by a group of firms before they are issued. Finally, eurobonds
are seldom issued to the public. The investors tend to be large financial institutions.
The last two features are similar to those of euroloans.
E. Multi-Bank Financing Contrasted with Commercial Paper Programmes

Commercial paper is one type of instrument in the broad category of capital 1.68
market securities alongside bonds, medium-term notes, and certificates of deposit.
Commercial paper, broadly construed, consists of promissory notes or bills of
exchange that are issued to raise money in the money market. Most commonly,
commercial paper consists of short-term (less than one year) unsecured promissory notes in bearer form. It represents the issuers direct obligation to the bearer
to pay a specific amount on a specific date.113 Normally, the commercial paper is
not directly linked to any trade transaction.114 The commercial paper is issued in
the money market by highly rated borrowers on the strength of their own credit.
The notes have minimum principal amounts of 100,000 and are intended to
raise funds for general operations. Short-term interest rates apply because the
112 See F Graaf, Euromarket Finance: issues in Euromarket Securities and Syndicated Eurocurrency
loans (Amsterdam: Kluwer, 1991).
113 C Paul and G Montagu, Banking & Capital Markets Companion (London: Law Matters,
4th edn, 2006) 223.
114 See eg the classic case of Goodwin v Robarts (1875) LR 10 Ex 337, affirmed (1876) App
Cas 476 (HL).
53

maturity period is typically up to one year.115 Commercial paper programmes are
normally structured to permit rollovers at each maturity. If such is the case, the
issuer of the commercial paper obtains medium- or long-term finance, with interest fixed only in respect of each rollover period. The purchasers of the commercial
paper are investment professionals, who are persons whose ordinary activities
include acquiring, holding, managing, or disposing of investments for the purpose of their business or who may reasonably be expected to undertake those
activities with investments for the purpose of their business. They normally
include banks, corporations, pension funds, and insurance companies. The banks
involvement is that of investors. Banks may also act as the issuers agent in placing
the commercial paper with the investors or they may act as advisers in structuring
the issue. However, the banks do not formally commit themselves to purchase
(underwrite) all the issuers commercial paper.
1.69 There are some noteworthy similarities between commercial paper programmes
and loan syndications and loan participations. The procedures and documentation generally used in commercial paper issues are similar to those found in syndicated loans. In particular, the issuers commercial paper is sold by one bank or a
small group of financial institutions to a bigger group of investors. The documents used include an agreement between the issuer and the investors, and an
information memorandum is distributed to provide information about the issuer.
This practice differs from that followed with respect to syndicated loans, where it
is common to issue information memoranda which are less formal than
prospectuses.116 It is also common to exempt syndicated loans from the disclosure
and registration requirements of the capital markets.117
F. Multi-Bank Financing Contrasted with Securitization

1.70 The topic and structures of securitization have sometimes appeared in discussions
dealing with syndicated loans or loan participations. This is because securitization

involves procedures and legal issues similar to those found in syndications and
participations.118 Furthermore, the reasons why banks engage in securitization
are similar to those that underlie syndicated loans and participations in loans.
115 Galloway, New Canadian Commercial Paper Financing Techniques in Commercial paper
Transactions (Toronto: Insight, 1987) TAB VII, 4; and generally, JS Elder and CE Baker, Securities
Law Aspects of Commercial Paper Transactions, in Commercial Paper Transactions (see above)
TAB III, 2.
116 The practice followed in respect of syndicated loans is discussed in ch 3 below.
117 Wood compiled a table comparing syndicated loans and bond issues. See Wood (n 55 above)
ch 9.
118 For procedural similarities between syndication and securitization, see R Weir, Profile of a
Specialist Mortgage Lender in Bonsall (ed), Securitisation (London: Butterworths, 1990) 745. See
also J Burrows (ed), Current Issues in Securitisation (London: Sweet & Maxwell, 2002); J Deacon,
54

Securitization has been described as the financing or refinancing of income- 1.71
yielding assets (receivables) by repackaging them together with suitable enhancements into tradeable securities with the securities being both secured on the assets
and serviced from the cashflows which they yield.119 In the context of banks, it
involves the pooling of loans or other assets such as derivatives and using such
pools to raise money from investors who thereby become entitled to receive the
loan proceeds. This popular method of financing is, as such, based on or backed
by previously existing financial assets such as loans; and this accounts for the
designation of asset-backed securities. Virtually all the banks and the major
investment dealers are active in creating new securitization products and issues.
Securitization is attractive to the banks, borrowers, and investors alike because
they all derive distinct advantages. For the banks, securitization means that
receivables are turned into cash thereby improving liquidity. Furthermore, this
improves their capital adequacy position because the securitized assets are written
off the books of accounts, resulting in the requirement that there be less equity.120
The investors primary attractions are the opportunity to acquire a safe and liquid
investment in diversified assets, which provides predictable cashflows and low
default rates.121 The instruments are also liquid and transferable. The arrangement
also normally results in borrowers paying lower interest rates. The securitization
of assets is accomplished mainly by the use of two legal structures:122
(1) the traditional sale structure;
(2) the sale of assets to the trustee of a receivables trust.123
In the predominant securitization method used in English practice, the bank 1.72
or investment dealer (the originator) creates an SPV or SPE,124 which is a new
Global Securitisation and CDOs (Chichester, UK: Wiley, 2004); M Fisher and Z Shaw, Securitisation:
for Issuers, Arrangers and Investors (London: Euromoney, 2003).
119 FSA Rulebook, BIPRU TP; S Curtis, A Practical Guide to the New FSA Rules for
Securitisation and Loan Transfers (1999) 14 J Int B L and Reg 260.
120 See 11.26 below. See GM Girvan Developments in Financing TechniquesSecuritization of
Financial Assets (198788) 2 BFLR 61, 63ff for advantages that necessarily follow.
121 See DC Bonsall, Legal Aspects and Considerations in Bonsall, Securitisation, (n 118 above)
22 and K Cox, Introduction and Overview in Bonsall, Securitisation (n 118 above) 4. See also the
authorities mentioned in n 118 above.
122 A third method of securitization utilizes the secured transaction model and is essentially
a charge over future receivables rather than a sale. For this method, see eg, X Zhang, Trends
and Developments in Cross-Border Securitisation, Part 2: Legal Structure of Project-Backed
Securitisation (2000) 8 JIBFL 318.
123 Paul and Montagu (n 113 above) 420; X Zhang, Trends and Developments in Cross-border
Securitisation, Part 1: Legal Structures and Analysis (2000) 7 JIBFL 269.
124 Where the originator seeks off-balance sheet treatment, it will create an orphan SPV specifically for the transaction and the shares of the SPV will be owned by a charitable trust. Where
off-balance sheet treatment is not sought, the SPV may be a subsidiary of the issuer.
55

and independent legal entity (a corporation or a limited partnership, but usually
a trustthe SPV) to which the loan assets and the accompanying collateral or the
applicable credit enhancement devices are transferred.125 In the traditional structure, the assets are sold to the SPV and it is important that legally it is a true sale126
(rather than a secured loan) so that title to the assets passes to the SPV. A sale can
be effected by a novation, legal assignment, equitable assignment, or declaration
of trust.127 The SPV exists solely for the purpose of the securitization and it is of
utmost importance that it is bankruptcy remote. Tradeable securities are created
and the SPV issues them to investors who thereby obtain a beneficial interest
in the SPV and become entitled to the payments made by the underlying
borrowers.128 A security trustee is appointed to hold the assets as collateral for the
investors. This arrangement may be illustrated as shown in Figure 1.10 below.
Figure 1.10 Securitization (Traditional Sale Structure)

Source: Banking & Capital Markets Companion.
FSA Rulebook, BIPRU TP.

A transaction is not a regarded as true sale if it is a sham: Snook v London and West Riding
Investments Ltd [1967] 2 QB 786; or is recharacterized as a secured loan: Welsh Development
Agency v Export Finance Co Ltd [1992] BCLC 148 (CA).
127 These legal methods have different attributes, with the first two being the most secure against
the whole world.
128 See BIPRU TP and the authorities in n 118 above.
125
126
56

2. Sale of Assets to a Trustee of a Receivables Trust
The sale to trustee structure is illustrated in Figure 1.11 below. The second 1.73
method of securitization is by way of the sale of assets (for example loans or
receivables) to a trustee of a receivables trust. The trustee is set up as a bare trust,
with instructions to deal with trust assets strictly in accordance with the trust deed
and without any discretion. The originator of the assets services the trust assets
and pays the proceeds to the trustee. The beneficiaries of the receivables trust
would be the originator and the issuer, and they would have an undivided fractional beneficial ownership interest in the underlying loan or receivables assets.
The overall effect of the arrangement is similar to an equitable assignment of the
assets to the issuer. The issuer would be a separate entity from the trust, and would
issue securitized bonds to investors and would thereby obtain the funds to make
payments to the trustee.
Figure 1.11 Securitization (Receivables Trust Structure)

Source: Banking & Capital Markets Companion.
Securitization has matured into a distinct method of finance that is different from 1.74
syndicated loans. It is, however, at the centre of mainstream secondary loan market practices. From the business point of view, securitization enables a lender to
raise capital on the strength of its assets in the same way as secondary loan market
practices. In fact, some practices, such as collateralized debt obligation, are essentially securitization. The legal methods for transferring or securing loan assets
57

are the same in secondary loan market practices as they are in securitization.129
Similarly, the same group of financial institutions invest in both securitization and
the secondary loan market. However, securitization has unique features that
distinguish it from syndicated loans and loan sub-participations. Probably the
strongest distinguishing factor is the quality of the banks financial contribution.
In securitization, the banks contribute funds as investors.130 In loan syndication
or loan participation, however, the banks act in their capacity as lenders.
Furthermore, there are intermediate parties, such as the SPV and the trustee,
between the originating bank and the ultimate investors. Finally, while securitization normally involves a pool of loans, the typical participation arrangement
is based on a single loan in each case.131 In conclusion, despite the striking similarities between securitization on the one hand, and syndicated loans and loan
participations on the other hand, securitization is not multi-bank financing, even
though syndicated loans may be securitized (CDOs) and even though banks do
invest in notes issued by securitization vehicles.
1.75 The debt obligation in a securitization is evidenced by commercial paper or a
bond. The commercial paper used in securitizations differs significantly from

traditional commercial paper because it is secured by a pool of loans or other
assets. Secondly, the issuer may be an SPV whose credit standing is rated independently of the ultimate user of the funds raised from the financial market.
Thirdly, the banks role in securitizations extends beyond distributing and investing in the commercial paper to include back-up facilities.132
VI. Conclusion
1.76 As contractual arrangements, syndicated loans and secondary loan market
practices have been developed incrementally, resulting in diverse and sometimes

complex transactions that need to be closely examined to ascertain their place in
the law. The common denominator for all multi-bank financing transactions is
that a number of financial institutions commit themselves in their capacity as
lenders to finance a single borrower. The diverse techniques of multi-bank financing fall into either of two categories. Either they are part of a primary transaction
where the banks act together from the outset in making a loan to a borrower, or
129 For this reason the FSA does not distinguish between securitization and other asset transfer
methods, such as loan participations. See Prudential Statement, ch SE.
130 Sometimes the banks provide back-up facilities, liquidity facilities, and credit enhancement.
131 But see eg Re Canada Deposit Insurance Corp and Canadian Commercial Bank (1987) 46 DLR
(4th) 518 (Alberta QB) where participations were sold in pools of loans.
132 AMS White, Structuring the issue: A Bankers view, in Commercial Paper Transactions:
New Directions in the Money Market (n 115 above) TAB II, 12.
58
Conclusion
they are part of a secondary transaction where a bank transfers an interest in its
loan to another financial institution. The reality that multi-bank financing is
done across geographical boundaries requires that the analysis, regulation, and
supervision of these methods should be viewed in the wider global context. This
may entail or even necessitate similar approaches to problems that are similar
even though the actual instruments and methods used in the regulation and
analysis may vary.
59

The Law of Multibank Financing

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The Law of Multibank Financing

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THE LAW OF MULTI-BANK FINANCING

Syndicated Loans and the Secondary

Great Clarendon Street, Oxford ox2 6dp

This book uses the designation multi-bank financing to encompass different

I am truly grateful to the multitude of individuals and institutions that assisted in

1. Multi-Bank Financing: What It is and is Not

II. The Dynamism of Multi-Bank Financing

Increasing Sophistication of Client Needs

III. Designation of Multi-Bank Financing

IV. Description of Multi-Bank Financing Transactions

2. Multi-Bank Financing: Who Uses It, Where, and Why?

II. The PartiesWho Uses Multi-Bank Financing?

III. Components of the Financial MarketWhere

IV. The RationaleWhy Parties Use Multi-Bank Financing

3. Arranging Syndicated Loans, Sub-participations, and Loan Participations

II. Arranging Syndicated Loans

III. Arranging Loan Participations and Sub-participations

4. Nature of Credit Facilities Used in Syndicated Loans and

II. Direct Loans

III. Documentary Credits

5. Syndicated Loans: Legal Relationships Between the Borrower

II. The Legal Nature of the Syndication Arrangement

III. Contractual Provisions in a Syndicated Loan Agreement

d. Payment of fees, costs, and expenses

6. Loan Participations: Legal Relationships Between the

III. Participant-Borrower Relationship

IV. Participant-Participant Relationship

7. Loan Sub-participations: Legal Relationships Between the

II. Legal Relationships in Sub-participation Arrangement

8. The Secondary Market For Syndicated Loans: Loan Trading,

II. Loan Trading

A. Past Obstacles to Loan Trading

III. Credit Derivatives

IV. Collateralized Debt Obligations

9. The Agent Bank in Syndicated Loans and Loan Participations

II. General Approach to the Agent Banks Legal Status and

III. Contents of the Agency Clause

II. Formal Statutory Insolvency Proceedings

III. Rescue and Restructuring Methods and Procedures

II. Regulation of Capital Adequacy

III. Regulation of Large Loan Exposures

IV. Regulation of Debentures

VI. Environmental and Social Regulation

II. Future Directions

Appendix 1: Multicurrency Term Facility Agreement (Miranda

III. Designation of Multi-Bank

IV. Description of Multi-Bank

4. Transferable Loan Facilities

Multi-Bank Financing: What It is and is Not

bank financing and distinguishes multi-bank financing from similar transactions.

credit to a borrower. The combination of the banks is usually highly coordinated,

financial practices discussed in this book. Some key wordssuch as syndication,

The Dynamism of Multi-Bank Financing

II. The Dynamism of Multi-Bank Financing

A. Increasing Sophistication of Client Needs

Mitsubishi UFJ Financial

Deal Value ($) (m)

Table 1.1 Top lenders for global syndicated loans, 20042006

Deal Value ($) (m)

Multi-Bank Financing: What It is and is Not

Mitsubishi UFJ Financial

Deal Value ($) (m) No.

Rank Lender Parent

Deal Value ($) (m)