Today, global financial markets in crisis are once again focusing on counterparty credit risk, as was the case after the collapse of Lehman Brothers a decade ago. The European secondary credit market uses a standard „loan participation“ form to transfer borrowers` risk and the profitability of a loan to the secondary market. The London-based Loan Market Association (lmA) publishes several forms of loan participation. In addition to the underlying borrower`s credit risk, the credit risk of the lender selling the loan on the market is a particular problem for investors who hold stakes in the LMA. The seller is called „Grantor“ of the participation. Partial participation is a means by which a lender can transfer its risk to another lender as part of a loan. In the case of a partial participation, the member deposits a deposit with the credit bank corresponding to his participation and the central bank agrees to pay the participant sums equal to the participant`s share in the bank`s revenue, if and when it is received by the borrower. The lead bank does not reject or explain part of the initial loan to the participant. The participant is only a creditor of the credit bank and not the borrower and if the bank is insolvent, the participant is an unsecured creditor of Lead Bank. As part of a partial capitalization stake, the existing lender determines the amount of the loan in which it wishes to participate, and then receives a deposit from a new lender up to the loan.

The lender making the deposit is referred to as a „sub-participant.“ There will of course have been a number of reasons why a purchase was originally structured as a partial shareholding. These reasons need to be reconsidered in the context of a subsequent investigation. Among these issues is the fact that the Spanish court accepted that the loan had not been granted and that the undertaking had not been applied. The court was strongly insinsued by the fact that the leading bank is the only entity capable of exercising a right against the borrower, which made it impossible to rescripte the partial participation. Partial participation is different from innovations and divestitures because it does not involve the transfer of rights or obligations. On the contrary, it creates a new set of rights and obligations between the existing and a new lender. The initial loan is maintained and the relationship between the borrower and the original lender is not affected. In other words, an under-participation agreement is totally different from the original transaction. The LMA participation agreement provides both the recipient and the participant with the opportunity to „take“ the participant, allowing both parties to convert the participant`s participation in participating loans into a direct „lender“ (subject to the terms of the credit contract). If the lender`s solvency becomes a problem, the participant can increase the participating loan and become a direct lender under the credit agreement. However, credit contract restrictions, adverse tax effects and regulatory concerns (some legal regimes govern direct credit and a bank lender may require a banking licence) may mean that an increase is not a viable option. In summary, if the beneficiary has not yet been the subject of a formal insolvency procedure in the United Kingdom (management or liquidation), the ability of the funder to carry out formal transactions is not limited.

It follows that, when dealing with the sub-participant`s ability to meet his obligations, the member „increases“ his interest in the loan and a direct lender can or may request that the loan be transferred to a third party so that the member can enter into a new sub-participation contract with the third party with respect to the same credit contract. The main drivers of the success of this type of contract on the Spanish market are that (i) the main bank can remove non-performing debt securities from its balance sheet; (ii) that international investors have acquired a credit position without having to deal directly with the debtor and without stamp duty or other