Law of International Finance: Syndicated Loans Introduction #Finance

hello I’m Philip Rawlings the ROI good professor of commercial law at the Center for commercial law studies Queen Mary University of London and also convener for the law of international text-decoration: none;">Finance syndicated Loans on the international program of the University of London this course is about an important way in which large companies raise large amounts of money let’s say a car maker wants to build a new factory at a cost of a

billion pounds how does it raise the money they could go to its bank but the bank might be reluctant to lend such an enormous sum one solution is to persuade several banks a syndicate each to lend part of the money this is an enormous market across the world in 2015 borrowing through syndicated

Loans reach four point seven trillion US dollars it’s also an international market and because of its global importance as a Finance center London is

one of the main places where such deals are arranged such deals raise a lot of interesting legal issues the first of which is what legal system applies to the deal these deals typically involve players in different countries for example the syndicate might comprise a US bank a French bank a British

bank a German bank and a Japanese bank the borrower might be a norwegian company that wants to drill for oil in indonesia and the contracts might be negotiated and signed in london oh we could just state in our contract that a particular legal system applies let’s choose English law but how

do we know if a Norwegian company has the contractual capacity to enter this contract do we assess this by English law or by Norwegian company law and the Loan is secured on the Indonesian oil wells what powers to the lenders have over those Assets are these

determined by Indonesian law or Norwegian law or English law another problem is the nature of the relationship between the various parties let’s say that in our example each of the five banks promises to lend a hundred million pounds what if one bank can’t comply because it’s

become insolvent or the other banks obliged to step in and make up the difference some other issues arise syndicated Loans often last for several years so lenders need some reassurance about the continued financial health of the borrower and if something goes wrong they need to

know they can act to protect their investment we can of course take security over the borrower’s over Assets this would give us the right to sell them but that’s a drastic solution and anyway the security may not be as valuable as initially thought particularly if we

have to sell it in a hurry much better to prevent a crisis from happening if possible but this isn’t straightforward we could put in lots of controls so we can have terms that require the lender to keep its business within certain financial limits and that restrict its ability to dispose of

Assets but we don’t want to impose too many restrictions because they might obstruct the borrower’s ability to do business what terms should be included what problems arise in drafting these terms and how are they resolved of the many other issues covered by this course

I’ll mention just one these Loans may last for several years and for reasons we will discuss banks don’t necessarily wish to retain their involvement in the Loan so there’s an important market in Loan participations which means

that the transfer of Loans is an important area of law and practice again there are difficulties which is lawyers we need to help solve for example the borrower may not want the original lenders to sell on their participations because it enjoys a good relationship with the lenders

which could be important if it encounters difficulties in complying with the terms of the agreement the borrower may therefore insert into the original contract a prohibition on transfer now this is something many borrowers are able to do because they’re far more powerful than you or I when

negotiating with banks how effective is a restriction on transfer can the lenders get round it the brief answer is they can and the longer answer which is discussed in the course shows the inventiveness of the market in finding solutions surprisingly for an area of law that involves trillions of

pounds there is relatively little hard law in the sense of cases or legislation this makes the course particularly exciting because we need to think about how to deal with problems so lots of opportunities for imagination and innovation I should add that although this course focuses on syndicated

Loans many of the terms we’ll discuss and the issues that arise can be found in other areas of international Finance such as Bonds

securitisation and project Finance finally knowledge of English contract law is not necessary for this course you will learn all you need to know as you progress