TMF Group expert David Bell urges you to think carefully about who you engage as your Loan Facility Agent – independence can prove crucial.
It’s not uncommon in the world of syndicated loan transactions for one party to act in multiple capacities – arranger, facility agent, lender, hedge and swap provider. But recent High Court judgements in England have called this approach into question, leading to a rise in demand for independent facility agents.
The Court’s judgements say that if a party is acting in several capacities under a finance agreement, those roles must clearly set out the rights and obligations of that entity in each of its capacities, just as the precise duties of an agent in any particular case are determined by the express terms of the agreement between parties.
It also says there are no clearly defined set of general duties as a matter of common law that can be automatically imposed upon an agent in financing transactions, leaving limited scope for implying additional obligations into a detailed finance contract between sophisticated parties.
When you have tiers upon tiers of complicated facility agreements, keeping on top of who has what obligation gets difficult. It does, however, highlight the benefits to working with an independent facility agent - a party not involved in other parts of the structure, and who can provide that necessary role of agent without any conflict of interest.
Independent agents bring value
Often the reason parties involved in a loan transaction supporting one entity take multiple roles is that of relationship, arranger support for the transaction and overall convenience, and traditionally this makes sense. However, conflicts of interest can occur, particularly with regards to waivers, amendments and restructures – which on certain transactions has resulted in litigation between the parties.
A non-conflicted, independent loan agent performing this administrative role can provide comfort to the lenders by ensuring specific compliance to the terms of the credit agreement.
The other benefit to a non-conflicted loan agent seems so simple, but it is key: efficiency
Larger entities do claim to be efficient, but often numerous decisions are made by committee and this can add significant time and cost to a transaction. An independent facility agent can be more nimble as it has no conflicts of interest and concentrates solely on providing the agent role.
Read more about how TMF Group can provide that independence to loan administration.
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