By Viatcheslav Khorovsky

1
EBC Legal Committee SeminarSyndicated Lending
in Russia

• By Viatcheslav Khorovsky
• 27 May 2004

2
Types of syndications

• Primary or normal
• Secondary

3
Primary syndication
Lender
Borrower
Lender
Agent Bank
Lender
4
Primary syndicationStructure

• All lenders and the borrower execute one loan
  agreement
• Every part of the loan in amount of the
  corresponding portion is viewed as a separate
  loan of each of the lenders to the borrower
• Agent bank is authorised to act as an agent on
  behalf of the lenders

5
Primary syndicationLegal aspects

• Multiplicity on the side of creditors
• Syndicated loan agreement agreement of a mixed
  type
• Legal status of the agent bank
• Lending and repayment rules

6
Secondary syndication
Lender
Lender
Borrower
Agent Bank
Lender
7
Secondary syndicationStructure

• Loan agreement between the borrower and the
  lending bank
• Sub-participation agreement between the lending
  bank and other participants
• Funded Sub-participation
• Risk Sub-participation
• (a) Commitment Risk Sub-participation
• (b) Indemnity Risk Sub-participation

8
Funded Sub-participation
Places limited recourse deposit with Lending Bank
and Sub-Participant assumes credit risk In the
loan agreement
Lending Bank
Sub-Participant
Full drawn loan
Borrower
9
Commitment Risk Sub-participation
Agrees to place limited recourse Deposit with
Lending Bank in the event Borrower makes drawdown
under the loan agreement
Lending Bank
Sub-Participant
Undrawn loan
Borrower
10
Indemnity Risk Sub-participation
Agrees to indemnify Lending Bank in the event
Borrower Defaults on the underlying loan agreement
Lending Bank
Sub-Participant
Full drawn loan
Borrower
11
Legal aspects of Sub-participation

• Legal relationship arises only between the
  lending bank and the borrower
• Conditionality in Funded Sub-participation and
  Risk Sub-participation
• Definition of the loan agreement under Civil Code
  (Article 819)
• Indemnity Risk Sub-participation vs.
  suretyship/guarantee
• Syndicated lending without determination of
  portion conditions (CBR Instruction 110-I)

12
Assignment of Rights/Substitution of lender

• Individually syndicated loan (CBR Instruction
  110-I)
• Assignment as a way of substitution of a party in
  an obligation (Chapter 24 of the Civil Code)
• Validity of assignment under Russian conflict
  rules
• Definitions of syndicated loans under CBR
  Instruction 110-I

13
Applicable law

• Mitigating of Russian risks through choice of
  foreign law
• Possibility of application of foreign law under
  Russian conflict rules
• Application of imperative provisions of Russian
  law
• Choice of jurisdictions of foreign courts and
  foreign arbitration

14
New Law On currency regulation and currency
control

• Expected changes in currency regulation and
  currency control
• Possibility of assignment of rights to export
  proceeds and non-receipt of proceeds under the
  new Law
• Assignment of export proceeds in favor of Russian
  lenders
• Innovations affecting syndicated lending