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Loan Participation Agreement for Hong Kong

Loan Participation Agreement Template for Hong Kong

A Hong Kong law-governed agreement that establishes and regulates the sale of a participation interest in a loan or credit facility from an original lender to a participant. The agreement defines the nature of the participation, whether funded or unfunded, the participant's rights to receive payments and information, voting and decision-making rights, and the mechanisms for administering the participation arrangement. It includes provisions for payment distributions, information sharing, confidentiality, and regulatory compliance specific to Hong Kong's legal and regulatory framework.

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What is a Loan Participation Agreement?

The Loan Participation Agreement is a crucial document used in financial transactions where a lender wishes to transfer economic interest in a loan while maintaining the direct lending relationship with the borrower. This agreement, governed by Hong Kong law, is commonly used by banks and financial institutions to manage their loan exposure, meet regulatory requirements, or share risk. It sets out the terms under which the participant acquires an interest in the loan, including payment arrangements, information rights, and voting mechanisms. The document must comply with Hong Kong banking regulations and financial legislation, particularly regarding regulatory capital requirements, banking secrecy, and securities laws. It's especially relevant in syndicated lending, risk management, and secondary market loan trading scenarios.

What sections should be included in a Loan Participation Agreement?

1. Parties: Identifies the original lender (seller) and participant(s) (buyer) entering into the agreement

2. Background: Describes the underlying loan agreement and the intention to sell a participation interest

3. Definitions and Interpretation: Defines key terms used throughout the agreement and sets out interpretation principles

4. Sale and Purchase of Participation: Details the participation interest being sold, purchase price, and completion mechanics

5. Nature of Participation: Specifies whether the participation is funded/unfunded, risk participation only, and confirms it is not a loan assignment

6. Payments and Distributions: Mechanisms for sharing payments received under the underlying loan and settlement between parties

7. Information Rights: Participant's rights to receive information about the underlying loan and borrower

8. Decision Making and Voting Rights: Process for consulting with participant on loan decisions and extent of participant's voting rights

9. Representations and Warranties: Standard representations from both parties plus specific ones relating to the underlying loan

10. Tax Provisions: Handling of tax payments, withholding tax, and tax-related indemnities

11. Administration and Communications: Procedures for notices, calculations, and general administration of the participation

12. Confidentiality: Obligations regarding confidential information and permitted disclosures

13. Assignments and Transfers: Restrictions and procedures for transferring participation interests

14. Termination: Events triggering termination and consequences of termination

15. Governing Law and Jurisdiction: Specifies Hong Kong law as governing law and jurisdiction for disputes

What sections are optional to include in a Loan Participation Agreement?

1. Multiple Participant Provisions: Required when there are multiple participants, addressing sharing of rights and decision-making processes

2. Elevated Rights: Used when participant is granted rights beyond a typical participation, such as direct enforcement rights

3. Sub-Participation: Include when sub-participations are permitted, specifying conditions and requirements

4. Risk Sharing Provisions: Detailed provisions for risk allocation when participation is primarily for risk management

5. Special Voting Arrangements: Required for complex voting arrangements or when participant has specific voting thresholds

6. Security Trust Provisions: Needed when underlying loan is secured and participant has indirect interest in security

7. Regulatory Compliance: Special provisions addressing specific regulatory requirements applicable to either party

8. Buy-Back Rights: Optional provisions allowing seller to repurchase the participation under specific circumstances

What schedules should be included in a Loan Participation Agreement?

1. Details of Underlying Loan: Key terms, conditions, and details of the underlying loan agreement

2. Form of Transfer Certificate: Standard form for documenting transfers of participation interests

3. Administrative Details: Contact details, account information, and payment instructions for all parties

4. Participation Amount and Price: Detailed breakdown of participation amount, purchase price, and any pricing adjustments

5. Form of Confidentiality Undertaking: Standard form for confidentiality agreements with potential transferees

6. Borrower Information: Summary of key borrower information and financial details (subject to confidentiality restrictions)

7. Calculation Methodology: Detailed methods for calculating payments, fees, and other amounts under the participation

8. Required Notices and Forms: Templates for various notices and forms required under the agreement

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Hong Kong

Publisher

Genie AI

Document Type

Finance Agreement

Cost

Free to use

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