Finance party default—lenders
Finance party default—lenders

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Finance party default—lenders
  • Defaulting lenders
  • Defaulting lender provisions—the borrower's perspective
  • Defaulting lenders in revolving facilities
  • Non-acceptable lenders in letter of credit facilities

In times of financial crisis, it is not just borrowers who are under financial pressure; lenders are also at risk of getting into financial difficulty. Facility documents have developed over time (particularly as a result of the financial crisis which began in 2008) to deal with the issues raised by the credit risk of lenders.

This Practice Note considers:

  1. the circumstances in which a lender should be classified as a defaulting lender

  2. defaulting lender provisions in typical facility agreements

  3. defaulting lender provisions under revolving facilities, and

  4. non-acceptable lenders under letters of credit facilities

For information on the key issues involved where a facility agent in particular is in financial difficulty, see Practice Note: Finance party default—facility agents.

Where appropriate, this Practice Note highlights relevant provisions in the Loan Market Association (LMA) senior multicurrency term and revolving facilities agreement for leveraged acquisition finance transactions (LMA leveraged facilities agreement) (available to LMA members on the LMA website).

The LMA's user guides (available in the Documents & Guidelines section of its website) and the Association of Corporate Treasurers (ACT) Borrower’s Guide to the LMA’s Investment Grade Agreements (2017) contain useful guidance on defaulting lender provisions in LMA documentation. Registration at the ACT website is required to access their guide.

The LMA has also produced a guidance note dealing with defaulting lender provisions in its documents. See