Basic principles of syndication and transfer of loans for tax lawyers
Basic principles of syndication and transfer of loans for tax lawyers

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Basic principles of syndication and transfer of loans for tax lawyers
  • Syndication
  • Why lenders transfer loans
  • Methods of transferring loans
  • Novation
  • Assignment
  • Sub-participation
  • Key differences between main methods of loan transfer

Syndication

In a syndicated transaction, two or more lenders agree to make loans to a borrower on common terms which are set out in a single facility agreement entered into by all of the parties.

Practice Note: Key features of syndicated facilities explains the key features of syndicated facilities and the principles upon which syndication is based, such as the several rights and obligations of the finance parties, syndicate democracy, pro rata sharing between lenders and the role of the agent. It also explains the advantages of syndicated facilities for a borrower and the role of the secondary loan market in syndicated transactions, looking at the Loan Market Association standard transfer provisions.

Why lenders transfer loans

There are times when a lender might want to get back some of the money it has lent to a borrower before the borrower is due to repay it.

If the borrower is performing its obligations under the loan agreement, the lender cannot demand early repayment of the loan or take any steps to recover amounts from the borrower. The only option therefore, is to look to transfer the loan to another lender.

Transferring the loan might be the objective from the outset of the transaction if, for example:

  1. there is insufficient time to get a syndicate of lenders together at the start