Selling a loan by sub-participation


Produced in partnership with Jacqui Allen of Mandel, Katz & Brosnan LLP
Practice notes

Selling a loan by sub-participation


Produced in partnership with Jacqui Allen of Mandel, Katz & Brosnan LLP

Practice notes
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sub-participation is a means by which a lender can transfer its risk in a loan to another entity. It is used in the loan market as an alternative to assignment or novation. For information on loan transfers in a lending context, see Practice Note: Introductory guide to loan transfers.

This Practice Note:

  1. •

    explains what is meant by funded sub-participation, risk-participation and credit default swaps

  2. •

    looks in more detail at the key consideration when entering into a sub-participation, and

  3. •

    discusses the recommended form Loan Market Association (LMA) sub-participation agreement for par/distressed trades

What is meant by sub-participation?

Sub-participation differs from novation and assignment because it does not involve any transfer of rights or obligations in the loan. Rather, it creates a new set of rights and obligations between the lender of record that is party to the finance documents and the sub-participant. This is a separate, new arrangement that is totally distinct from the original transaction and requires a separate set of documents.

The original loan stays in place

Jacqui Allen
Jacqui Allen

Partner, Mandel, Katz & Brosnan LLP

Jacqui Allen heads the London office of Mandel Katz & Brosnan. Jacqui's practice focuses on the secondary loan trading markets and providing advice on the legal issues relating to the purchase and sale of distressed assets. Jacqui has been actively involved in the loan trading market since 1997 and has had extensive experience in various types of high-yield transactions throughout the world, including the purchase and sale of distressed and par loans, trade claims and loan restructurings. In addition, Jacqui concentrates on representing banks, hedge funds and other financial institutions that purchase and sell distressed assets in emerging and established markets in Europe, Asia and Australia.

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Jurisdiction(s):
United Kingdom
Key definition:
Sub-participation definition
What does Sub-participation mean?

The process whereby a secondary trade acquires an interest in the underlying debt from a lender who remains the lender of record.

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