Transferable Loan Facilities

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Transferable loan facilities are loans in the banking sector that can be transferred from one creditor to another lender by the lender by means of the appropriate design of the loan agreement .

General

Credit claims are generally intended as part of the investment book of a financial institution from the time of credit allocation to the loan repayment (in which to be held in inventory bank balance : category "held to maturity", "in the inventory to maturity" ). The banks have the firm intention and ability ( IAS 39.9) to hold the loans until they mature . This is underpinned by the fact that loan claims are naturally not as fungible as claims securitized in bonds .

However, a situation can arise for credit institutions in which higher fungibility of loans appears to be desirable. For example, if the credit risk in the loan portfolio has deteriorated due to cluster risks or granularity , or if certain loans are at risk of default ( non-performing loans ) or if the bank balance sheet is to be relieved in order to improve the core capital ratio , then loan trading can only take place if the loans concerned are transferable. Transferable loan facilities were created in August 1984 when a euro loan was restructured to the Irish "Telecom Éireann" and represented a further development in the area of ​​syndicated euro loans. Up until that time, a syndicate could only pass its risk without a corresponding contract ("assignment clause") involving ( English "sub-participation" decrease) of third parties.

species

Transferable loan facilities are expressly transferable loans that appear in the market in two types. While Transferable Loan Instruments (TLI) have the character of a security , the bank's claims from Transferable Loan Certificates (TLC) can only be asserted from the loan agreement. This happens through a conversion of the obligation in the context of novation .

Legal issues

Before 1984, loan agreements usually did not provide for the transferability of loans because the banks intended to keep the loans granted in their own portfolio until they were finally repaid. If a loan was then to be transferred, this would meet with obstacles. The difficulties of transferring the rights and obligations of a bank from the loan agreement through sub-participation, assignment and novation had led to the consideration of incorporating the saleability of loans into the (syndicated) loan agreement from the outset . Today, loan agreements usually contain a clause that expressly allows transferability . This is the transfer clause ( English Transfer Clause or English Assignment Clause ), which is part of the model loan agreements of the Loan Market Association (LMA). It enables the consort to transfer the credit by way of assignment ( English transfer or English assignment ) to a new creditor who takes on all rights and obligations instead of the old creditor. The assignment clause can be designed in such a way that the lead manager and / or the borrower must agree to an assignment.

The private international law or the common law permit assignment clauses without any restriction. If German law applies, the clauses used by the credit institutions must comply with the provisions of the Risk Limitation Act of June 2008 (see Credit Trading ). In the loan agreement, especially in the case of syndicated loans, it is expressly agreed that a sale of the receivable is possible or intended. In the case of the TLI, the transfer occurs through simple assignment, in the case of the TLC the transfer of the creditor's rights occurs through novation. Through the assignment clause, the buyer of such a credit claim acquires direct rights and obligations towards the borrower from the credit agreement, while the seller is no longer involved after the transfer.

purpose

Assignment clauses are the crucial formal requirement for credit trading. The clauses make a bank's loan portfolio more flexible because they allow the transfer of one or more loans (“loan packages”) to other creditors. This may be necessary in order to compensate for any increases in risk that have occurred over time. The risk is not only increased by the deteriorating economic situation of borrowers (“ rating migration ”), but also by worsened cluster risks and granularity. A mere improvement in the core capital ratio can also be a reason to sell loans without the risk having to increase. Transferable loan facilities are part of securitization , but can have a negative effect on relationship banking .

Individual evidence

  1. ↑ Edgar Löw (ed.), Accounting for banks according to IFRS: Practice-oriented individual presentations , 2005, p. 479
  2. ↑ Hans E. Büschgen / Kurst Richolt, Handbook of the international banking business , 1989, p. 162
  3. ↑ Manuel Lorenz, Subparticipations in Loans in Common Law and Civil Law , 1993, p. 66
  4. ↑ Wolfgang Grill / Ludwig Gramlich / Roland Eller, Gabler Bank Lexikon: Bank, Börse, Financing , 1995, p. 568