(i) Qualified Lender – the credit agreement may include contractual restrictions for eligible lenders. These restrictions are often linked to tax definitions and many buyback funds find it difficult to take a direct stake in a loan. Under-participation is a means by which a lender can transfer its risk to another lender as part of a loan. Given the derivative nature of the LMA form of the equity agreement – the underlying loan is owned by the licensor – there is a potential risk that the transaction will be executed if the transfer or increase took place on the eve of insolvency. While this argument may be useful in the context of unreal distributions, the general nature of the under-participation structure, that is. a loan from the company to the licensor, and not easily for such an interpretation. While the bank succeeded, the litigation resulted in a delay in implementation, which could have been avoided if the under-participation between the lead bank and the sub-participants had been confidential, as is usually the case. However, Spanish legislation does not specifically regulate this type of transaction. Hence the risk of a re-characterization according to Spanish law. Recently, debtors are beginning to argue that an under-participation is actually an assignment of receivables. Among the consequences of an assignment of receivables are, inter alia, that it is clear that there were a number of reasons why a purchase was initially structured as a shareholding.
Such reasons need to be re-examined in the context of a subsequent increase. . . .