Law and Corporate Finance

Words: 547
Pages: 2
Subject: Research Writing

Please answer THE below question

A&B Bank plc holds a loan with a nominal value of 50 million as part of a syndicated loan to large industrial group located in the north of England. The loan is unsecured. A&B Bank believes that the borrower under this loan might be in financial difficulties, although they are not entirely sure about this. As a consequence, A&B would like to reduce its exposure to the borrower. A&B contemplates selling 50% of its participation in the syndicated loan to a hedge fund, specialized in distressed debt investment.

The loan agreement contains the following provisions:

8.1: Each bank may assign its participation or novate its rights and obligations to any other person with the prior written consent of the borrower and, without such consent, to any other bank or financial institution.

10.2: If any bank receives a greater proportion of its share, it must immediately pay the excess to the agent, who redistributes to the banks pro rata and the paying bank is subrogated to the claims of the banks so paid.

The borrower maintains deposits at A&B to an amount of 10 million. Moreover, A&B does not want the borrower to know that it is transferring part of its participation because this might impact on its relationship with the borrower.

A&B asks for your advice on the proposed transaction. In particular, A&B would like to know whether and to what extent the proposed transaction would be possible at all, and if so, what the implications would be.

Advise A&B