Last Updated October 08, 2019

Law and Practice

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Winston & Strawn London LLP provides a wide range of legal services through its banking and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies, on investment grade, leveraged and mezzanine financings. The firm advises on high-profile transactions and matters ranging from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading international funding sources which provide senior, subordinated, secured and unsecured debt, and hybrid (equity/debt) products, as well as institutional investors who regularly participate in senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. Additional thanks to partners Ed Denny and Dan Meagher and associate Shaheer Momeni, among others, for their contributions to this chapter.

The transfer of loans to new parties is governed by the terms of the facility agreement. Trading of syndicated debt is common and active, with the most prevalent structures for trading debt being the following:

  • novation: this extinguishes the original contract between the borrower and the outgoing lender and creates a new contract between the borrower and the new lender on the same terms. Novation is the most widely used form of transfer in the London market, since it protects the transferee from certain acts by the transferor. However, it may have adverse consequences for overseas security, especially in some European jurisdictions. Parallel debt provisions may be needed to mitigate these consequences; 
  • assignment: under English law it is possible to assign the lender’s rights, but not the lender’s obligations to the borrower. Assignments are common, but coupled with assumption of duties as regards the obligations of the lender, eg, lending commitments; and
  • sub-participation and total return swap: these arrangements involve the creation of a new contract between the lender and the participant while the existing contract between the lender and the borrower remains in place. They are not suitable where the lender wants to extinguish all of its involvement in the facility but they are used to transfer commercial risk where restrictions prevent a direct transfer. The participant is exposed to credit risk on the lender as well as the borrower, and does not benefit from security the borrower has granted the lender unless otherwise agreed.

A transfer will, at a minimum, require the borrower or obligor's agent to be consulted or notified, or trigger pre-emption or other rights for the other lenders in the syndicate. Assignment and transfer regimes have become more controversial as lenders in the European market try to reduce secondary market transfer settlement terms. Provisions which require a borrower’s consent, or allow transfers to lenders on a white list or during payment or insolvency-related events of default are resisted. Transferability in relation to competitor restrictions and around loan to own and distressed investors has become a focus as well. All of these entitlements need to be addressed and observed in order to ensure a valid transfer.

The buyer of the debt will usually benefit from any English security following the transfer without compromising the priority of the security, as English law security held under secured syndicated loans will typically be held on trust by a security trustee for the benefit of the lenders from time to time and/or benefit transferors. Different considerations may apply to overseas security for a loan governed by English law.

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Authors



Winston & Strawn London LLP provides a wide range of legal services through its banking and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies, on investment grade, leveraged and mezzanine financings. The firm advises on high-profile transactions and matters ranging from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading international funding sources which provide senior, subordinated, secured and unsecured debt, and hybrid (equity/debt) products, as well as institutional investors who regularly participate in senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. Additional thanks to partners Ed Denny and Dan Meagher and associate Shaheer Momeni, among others, for their contributions to this chapter.

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