EBC Legal Committee Seminar Syndicated Lending in Russia

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EBC Legal Committee SeminarSyndicated Lending in
Russia

• Syndicated Lending Techniques
• Andrew Gamble
• Partner
• Lovells
• 27 May 2004

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The Syndicate
Borrower
Agent
Lenders
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The Security Trustee
Security Trustee
Borrower
Agent
Lenders
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Transferees and sub-participants
Security Trustee
Borrower
Agent
Transferees
Lenders
Sub-participants
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Assignment/Novation

• Assignment
• transfers rights only
• obligations remain
• indemnity
• Novation
• transfers rights and obligations
• new contract between borrower/lender
• accessory security issues
• Borrower consents
• Majority bank decisions
• revolving loan
• political/commercial sensitivities
• keep in the club
• EoD, all bets off

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Sub Participation

• Funded/Unfunded
• Back-to-back loan / deposit
• Total Return Swap
• Risk and capital weighting issues
• Sub-participation agreement
• LMA form
• control by participant
• control by borrower

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Parallel Debt Issues
Account charge
Account Bank
New Account Bank
Borrower
Security Trustee
Agent
Parallel Debt
Offtake Contracts
New Trustee
New Agent
Insurance Contracts
Sureties
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Documentation

• LMA established in December 1996 European-based
• Aims for a more structured and liquid loan market
• standardise and simplify sale of loan assets
• establish a market standard for settlement
  procedures
• establish codes of practice
• establish loan valuation mechanism
• Mission
• to become authoritative voice of European
  syndicated loan market

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Primary Documents

• Multicurrency Term and Revolving Facilities
  Agreement
• Multicurrency Term Facility Agreement
• Multicurrency Revolving Facility Agreement
• Single currency versions
• Form of Sub-participation Agreement

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Hard Provisions

• Mechanics for making the loan, paying interest
  and repaying principal
• Withholding tax gross-up clauses
• Indemnities for taxes, regulatory and other costs
• Relationship between agent/lenders and
  lender/lender
• Notice clauses
• Governing law and jurisdiction clauses

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Soft Provisions

• Representations
• Undertakings
• Financial Covenants
• Events of Default
• Transferability
• Conditions Precedent

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Simplified CLN structure
Contingent Repayment
CLN
Protection Buyer/Issuer
Investor
Proceeds
Actual Exposure
Synthetic Exposure
Reference Credit
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Credit Linked Note
AA Bonds
Proceeds
Return
Fee
Issuer / Seller
Protection Buyer
Contingent
Payment
CLN
Proceeds
Actual Exposure
Contingent Repay
Investor
Synthetic
Reference Credit
Exposure
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Loan securitisation by assignment
B Notes
Noteholders
A Notes
Issue proceeds
Issue of notes
SPV Issuer
Interest and/or currency swap
Loans
Principal and interest after sale
Sale of loans
Sale proceeds
Principal and interest before sale
Originator
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ART Alternative Risk Transfer
Debt
Commodity hedge
Credit Linked Note (cash-settled)
Political Risk Cover
Contingent Redemption Payment
Coupon
Noteholder
Underwriters
Underwriters
Underwriters
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Basel II

• No change to minimum Capital Ratio
• No change to definition of Regulatory Capital
• Change in the definition of Risk-Weighted Assets
• More convergence of
• Allocated Economic Capital
• Allocated Regulatory Capital
• Not raise overall Regulatory Capital but
  redistribute

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The three pillars of wisdom
Pillar 1
Pillar 2
Pillar 3

• Supervisory Review Process of Capital Adequacy
• To ensure banks have good monitoring and
  management of risk processes

• Market Discipline and Disclosure
• Requirements that allow capital adequacy to be
  compared across institutions

• Minimum Capital Requirements to cover
• Credit Risk
• Market Risk
• Operational Risk

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Impacts

• Compliance costs no IRB for smaller players
• Information accrual and analysis
• Competitive impact
• tough on the niche player?
• assist the bank with retail lending
• differences in supervisory approach
• Shift in lending/pricing
• Documentation impact

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Increased Costs clause

• The Borrower shall reimburse the Increased Costs
  which are as a result of
• introduction of or any change in (or in the
  interpretation, administration or application of)
  any law or regulation
• compliance with any law or regulation made after
  the date of the loan
• Increased Costs means
• reduction in rate of return from the Facility or
  on the lenders overall capital
• additional or increased cost
• reduction of any amount due and payable under the
  loan
• to the extent that it is attributable to funding
  the loan