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Law of Multi-Bank Financing

Law of Multi-Bank Financing

Copyright Date: 1997
Pages: 552
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  • Book Info
    Law of Multi-Bank Financing
    Book Description:

    The book includes chapters on what multi-bank financing is and who does it, relevant areas of law (including contract, torts, insolvency, tax, and statutes, such as the Bank Act), the mechanics of arranging loan syndications and loan participations, financial accommodation used (direct loans, bank guarantees, letters of credit, and bankers' acceptances), legal relations between parties in loan syndications and loan participations, rights and duties of the agent bank, securities regulation issues in loan syndications and loan participations, and accounting and tax issues in loan syndications and loan participations. Agasha Mugasha argues that loan syndications, loan participations, and related practices are commercial transactions between sophisticated parties and should be analysed and regulated as such. Sample documents for syndicated facility agreements, participation agreements, sale and participation agreements, and standby letters of credit are provided in appendices.

    eISBN: 978-0-7735-6666-8
    Subjects: Law

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-xii)
  3. Cases
    (pp. xiii-xxx)
  4. Statutes
    (pp. xxxi-xxxviii)
  5. Figures
    (pp. xxxix-xl)
  6. Preface
    (pp. xli-xlii)
  7. Acknowledgments
    (pp. xliii-xliv)
  8. Abbreviations
    (pp. xlv-2)
  9. 1 Multi-bank Financing: What It Is and Is Not
    (pp. 3-26)

    Multi–bank financing occurs when a number of banks act in concert to make a loan to a borrower. The combination of the banks is sometimes highly coordinated, while in other cases the banks act in loose associations that are linked only by the simultaneous lending of funds to a borrower.

    The two basic forms of multi–bank financing are loan syndication and loan participation. In a loan syndication several banks simultaneously make a loan to a borrower on the basis of a single loan agreement. In a loan participation a bank initially makes a loan to a borrower and...

  10. 2 Multi-bank Financing: Who Uses It, Where, and Why
    (pp. 27-49)

    Any single multi-bank financing transaction, be it a loan syndication or a loan participation, takes place within a particular regulatory and economic setting. The parties involved have reasons for using this particular method of financing and for using it in the particular financial market.

    This chapter discusses the reasons why multi-bank financing is attractive to its users. It also discusses the different financial markets in which banks operate. The discussion illustrates that while it may be convenient to limit the focus of this book to Canadian law and practices, it is always important to remember that Canadian banking practices form...

  11. 3 Overview of Relevant Areas of Law
    (pp. 50-75)

    There are no laws that apply exclusively to multi-bank financing transactions in general, or loan syndications and loan participations in particular. Multi-bank financing has developed within the framework of general principles of law such as contract, property, tort, and securities regulation. The drafting of loan participation and loan syndication agreements as well as their adjudication in court is done against the backdrop of these principles.

    The law of contract is the single most significant area of law that applies to the transactional facet of multi-bank financing. The duties and obligations the parties undertake towards one another are expressed in contracts...

  12. 4 The Mechanics of Arranging Loan Syndications and Loan Participations
    (pp. 76-126)

    An elaborate procedure is followed in arranging a loan syndication or a loan participation. The procedure gives rise to numerous legal issues, some of which have not been judicially determined. The allocation of rights and duties between the parties is mainly determined through the documents which they exchange, but it is also determined by general principles of law such as the law of torts. The bulk of this chapter is about the procedure for arranging a loan syndication. As will be pointed out later, the legal issues encountered in loan participations are similar to those encountered in loan syndications.


  13. 5 The Financial Accommodation Facilities Used in Loan Syndications and Loan Participations
    (pp. 127-147)

    Credit by way of syndications or participations may be extended to the borrower through various financial accommodation devices. A direct loan may be made, or credit may be extended by way of commercial letters of credit or guarantees.¹ Alternatively, the banks may accept the borrower’s bills of exchange, thereby enabling the borrower to raise funds from the money market. Such an arrangement would constitute lending by way of bankers’ acceptances. Typically, the borrower’s requirements necessitate a combination of these methods in the same facility.

    The selection of the appropriate financial accommodation facility generally depends on the borrower’s requirements. If a...

  14. 6 Legal Relations between the Parties in Loan Syndications
    (pp. 148-172)

    In a syndicated loan, several banks simultaneously but severally make a loan to a borrower on the basis of one lending document, usually called a loan or facility agreement. The syndicated loan agreement contains provisions similar to those found in other term loan agreements but has, in addition, features that necessarily arise because of the number of lenders involved. Its provisions may be conveniently grouped in three categories. First, there are what may be called operational provisions. These are concerned with putting the loan in place and repaying it on time. They provide for what should be done before the...

  15. 7 Legal Relations between the Parties in Loan Participations
    (pp. 173-205)

    The legal relationships between the parties involved in a loan participation arrangement; namely the borrower, the lead bank, and the participants are determined by the contracts which they enter into. Four possible relationships can be identified:

    1 Lead bank – borrower

    2. Participant – borrower

    3 Lead bank – participant

    4 Participant – participant

    The relationship between the lead bank and the borrower is a creditor-debtor relationship which arises from the loan agreement to which they are privy. The loan agreement is for all intents and purposes similar to other agreements that are not subject to participations. For that reason,...

  16. 8 The Characterization of the Participation Arrangement
    (pp. 206-233)

    The characterization or legal nature of the participation arrangement plays a pivotal role in determining the proprietary interests in the loan, the collateral, and the resulting proceeds. The difficulty of resolving the characterization debate once and for all has been alluded to by Professor Ziegel: “Frequently, the several parts of a participation arrangement lend themselves to different characterizations and the agreement is really a composite of cumulative legal elements. [Furthermore], there is a significant overlap between such flexible concepts as a secured loan or trust and the sale or assignment of an undivided share of a loan, and the language...

  17. 9 Rights and Duties of the Agent Bank in Loan Syndications and Loan Participations
    (pp. 234-248)

    Both loan syndications and loan participations typically have an agent bank to facilitate the relationship between the borrower and the participants, and among the participants themselves. The agent bank’s primary function is to relieve the participants of the administrative burden of the mechanical aspects of the loan. It is for this reason that some syndication agreements adopt the more functional designation of “servicing” or “administrative” bank.¹

    The agent bank in loan syndications is normally chosen by the participants, but has on occasion been chosen by the borrower. The agent bank in loan participations is typically the lead bank which made...

  18. 10 Securities Regulation Issues in Loan Syndications and Loan Participations
    (pp. 249-284)

    Syndicated loans are generally evidenced in writing. The writing may be a loan agreement, a promissory note, a debenture, or a general security agreement. Such written instruments acknowledge receipt of the loan by the borrower and also contain an undertaking to repay the loan. In the syndication arrangement, the syndicate manager acts as the borrower’s agent in raising funds from the other lenders. The syndicate manager may alternatively be seen as an underwriter where it commits itself to raise all the loan, but has the option of inviting other banks to join in the loan. In a loan participation, the...

  19. 11 Accounting and Tax Issues in Loan Syndications and Loan Participations
    (pp. 285-304)

    For supervisory purposes, the proper accounting procedures must be followed for both loan syndications and loan participations to maintain the bank reserves, liquidity, or capital adequacy. In recent years there has also been some concern over measuring and controlling large credit exposures even if the bank concerned is complying with its reserves, liquidity, and capital adequacy requirements.

    Tax issues arise in loan syndications and loan participations because tax is used as a method of raising revenue or implementing economic policy, such as encouraging diversification into certain areas of activity. The law of taxation specifies what areas of economic activity are...

  20. 12 Conclusion
    (pp. 305-314)

    Multi-bank financing transactions continue to grow in variety, complexity, and geographical coverage. They are used virtually all over the world. Loan syndications and loan participations were initially used to diversify the risk of lending, but this reason has been supplemented by many others. Banks have been left to fashion their own responses to the challenges of a competitive market and increasing demands from borrowers. As a result, the original, simple practices of loan syndication and loan participation have evolved to cover diverse and complex arrangements. Some arrangements have developed as alternatives to existing ones while others have developed as mere...

  21. Appendix A Sysndicated Facility Agreement
    (pp. 317-385)
  22. Appendix B Master Participation Agreement
    (pp. 386-403)
  23. Appendix C Format Participation Agreement
    (pp. 404-413)
  24. Appendix D Standby Letter of Credit
    (pp. 414-416)
  25. Notes
    (pp. 417-482)
  26. Bibliography
    (pp. 483-496)
  27. Index
    (pp. 497-506)