Negative Pledge
7LW003 Law Relating to Capital Markets and International Banking
Secondary Syndication – Loan Transfer
Introduction
Asset sales on the secondary loan markets, have become a more important part of the financial system over the last two decades. The big rise in activity initially arose as a result of the 1980’s sovereign debt crisis where banks sought to reduce their exposure to certain sovereign debts by selling on some of the loans. Then banks and certain other financial institutions then began through the 1990’s and 2000’s to utilise the secondary market more extensively to maximise the available profits1. The market was further developed by the development of securitisation (see Chapter 7), the entry into the market of non banking institutions, funds investing in loan products and the expansion of the leveraged buyout market in the corporate sector. Finally in various parts of the world organisations were set up to facilitate standard form documentation and operational procedures to make it easier to use the market. In the U.K. the Loan Markets Association (LMA)2, in the United States the Loan Syndication and Trading Association (LSTA)3 and in Asia the Asia Pacific Loan Markets Association (APLMA)4 all helped facilitate market activity in this way.
The increasing use of asset sales by banks in the U.K. was further facilitated by a number of factors. Some banks wished to remove some of the assets from their balance sheet for capital adequacy reasons following the arrival of Basel II5, some wished to use re-use funds already loaned by utilising the funds elsewhere for a higher profit margin, some wished to reduce their exposure to a particular market sector or particular client, some wished to quasi syndicate by making the initial loan itself and then sell part of it on, some to trade a loan on and profit from a margin differential and some to get rid of a risky debt or one that was is in default.
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Methods of Sale in the
Secondary Syndication – Loan Transfer
Introduction
Asset sales on the secondary loan markets, have become a more important part of the financial system over the last two decades. The big rise in activity initially arose as a result of the 1980’s sovereign debt crisis where banks sought to reduce their exposure to certain sovereign debts by selling on some of the loans. Then banks and certain other financial institutions then began through the 1990’s and 2000’s to utilise the secondary market more extensively to maximise the available profits1. The market was further developed by the development of securitisation (see Chapter 7), the entry into the market of non banking institutions, funds investing in loan products and the expansion of the leveraged buyout market in the corporate sector. Finally in various parts of the world organisations were set up to facilitate standard form documentation and operational procedures to make it easier to use the market. In the U.K. the Loan Markets Association (LMA)2, in the United States the Loan Syndication and Trading Association (LSTA)3 and in Asia the Asia Pacific Loan Markets Association (APLMA)4 all helped facilitate market activity in this way.
The increasing use of asset sales by banks in the U.K. was further facilitated by a number of factors. Some banks wished to remove some of the assets from their balance sheet for capital adequacy reasons following the arrival of Basel II5, some wished to use re-use funds already loaned by utilising the funds elsewhere for a higher profit margin, some wished to reduce their exposure to a particular market sector or particular client, some wished to quasi syndicate by making the initial loan itself and then sell part of it on, some to trade a loan on and profit from a margin differential and some to get rid of a risky debt or one that was is in default.
< >< >, assignment, >
Methods of Sale in the