UNIT 1
PREP
Question 1
Which two or more of the following might be described as a debt security?
Bonds
Notes
Commercial paper
Certificates of deposit
Loan stock
Shares
All of the above are debt securities except shares (answer F), which are a form of equity
security.
Question 2
Is the commitment fee on an unutilised part of a facility generally the same, higher or lower than
the interest that would have been payable had that part of the facility been utilised, or is it simply
not payable?
The commitment fee on the unutilised part of a facility is less than the interest that would be
payable if that sum were utilised.
Question 3
Under a term facility, which two or more of the following are typical repayment arrangements?
Amortisation.
Balloon.
Bullet.
Typical repayment arrangements for a term facility include: amortisation (principal (whole or
part) repaid in equal instalments over the term of the facility); balloon (principal (whole or part)
repaid in increasingly large instalments); and bullet (whole of principal repaid on maturity date).
There is no right to redraw amounts borrowed under a term facility when they have been repaid.
The repayment profile described at D is typical of a revolving credit facility.
Question 4
When a bank lends in sterling to a corporate borrower in order to make a profit, it is most likely
to do so on which two of the following possible bases?
At its own base rate plus a margin.
At componded SONIA plus a margin.
Feedback
Answers C and D are both correct. The Bank of England's Bank Rate may influence the rate at
which a bank sets its own base rate, but it will not normally be used as a basis for a loan by a
bank other than the Bank of England, so answer A is incorrect. Answer B is also incorrect
because a bank will not make a profit if it simply lends at its own base rate, which represents its
cost of funds (that is, what it costs the bank to make the loan). It will need to add on a margin to
make a profit, so answer C is correct. Alternatively, if the bank is borrowing on the London
interbank market, compounded SONIA is most likely to be used to reflect the cost to it of funding
its lending, to which it will add a margin which covers its costs of complying with capital
adequacy regulations and an element of profit, so answer D is also correct. The credit
adjustment spread can be included in the margin or dealt with as a separate element.
Question 5
Which of the facilities listed below is an 'on demand' facility?
An overdraft facility
That is correct. An overdraft is an 'on demand' facility meaning that the lending bank can ask for
repayment at any time and for any reason. An overdraft is generally also an uncommitted facility
meaning that the bank is not obliged to lend. All of the other facilities will only be repayable prior
to the scheduled repayment dates if an event of default occurs. Unlike overdrafts they are
generally committed facilities which means that the bank (or in the case of the syndicated
facility, banks) are obliged to lend provided that the borrower has satisfied all of the conditions
precedent to borrowing.
CONSOL
Question 1
Osprey Bank plc, Egao Bank plc, Milton Bank plc and Fletcher Bank plc are members of a
syndicate of banks which has made a term loan facility available to Fastron Limited. Osprey
Bank plc is the facility agent. Fastron Limited has put in a legitimate request to utilise an
advance under the facility. It becomes clear to the facility agent shortly prior to the agreed
utilisation date that Milton Bank plc is not going to be able to make its share of the advance
available in time.
Which one of the following statements is correct?
None of the other banks is liable to make up the shortfall in the advance.
In syndications, the obligation of each bank to lend is several (not joint and several). This means
that banks are not obliged to make up any shortfall caused by the failure of any other syndicate
member to lend, although they remain obliged to lend their own commitment.
The agent bank does not guarantee that any syndicate member will lend.
Question 2
Which one of the following statements is correct?
Debt securities generally contain more onerous terms and conditions than syndicated loans.
Debt securities are more likely to be secured than syndicated loans.
Debt securities generally have more flexible interest rate options than syndicated loans.
The interest rate payable under a syndicated loan is likely to be lower than that payable under a
bond issue.
C is the right answer. Syndicated loans tend to have more onerous terms and conditions so A is
wrong. Syndicated loans are more likely to be secured so B is also wrong. The interest rate
payable under a syndicated loan is generally higher than that payable under a bond issue so D
is wrong.
Question 3
Bostock Communications plc ("Bostock") has approached Aston Bank plc ("Aston") with a
request for a term facility of £100,000,000. As Bostock needs the money quickly, it is proposed
that Aston make the facility available as soon as possible, with syndication taking place after
utilisation. Aston would be arranger and facility agent under the syndicated facility.
Aston's credit committee reviews the initial legal and commercial due diligence carried out on
Bostock and identifies no major issues.
Which of the following statement is INCORRECT?
A.
Aston may decline Bostock's request if its credit committee is unhappy with the reason
why Bostock wants to borrow the money.
B.
Provided further due diligence reveals no problems, there can be no good reason
why Aston's credit committee should refuse to proceed.
C.
Aston may refuse to proceed if it feels that other banks would not find the proposal
attractive.
D.
Aston may refuse to proceed if it already has significant exposure to the market sector in
which Bostock operates.
Correct. Answers A, C and D are all correct statements. Answer B is incorrect.
If Aston's credit committee feels that the purpose for which Bostock wants the facility does not
make sound business sense eg: a risky acquisition which could put Bostock's ability to repay
the facility at risk, it may refuse to lend so Answer A is a correct statement. Equally, if it is going
to make the entire facility available to Bostock at the start, it will want to make sure that other
banks will want to participate in the facility when it is syndicated so that it does not have such a
high exposure to Bostock long term, so Answer C is also a correct statement. Finally, however
good the deal is, Aston may refuse the business if it already has a high exposure to the relevant
market sector, so that it does not take the risk of huge losses if there is a sudden downturn in
that market sector, so Answer D is a correct statement.
There are therefore many reasons why, even if the results of initial due diligence are
favourable, a bank may decline a facility and so Answer B is an incorrect statement. Note
that it is not market practice for a bank to act as facility agent or arranger on a syndicated facility
without its taking and retaining a participation in the facility itself - this would indicate a lack of
confidence in the borrower and also would not give it any incentive to carry out its ongoing
duties as agent diligently.
Question 4
Which ONE of the following statements relating to SONIA (Sterling Overnight Index Average) is
CORRECT?
SONIA is a "risk-free" rate.
SONIA is a forward-looking rate.
SONIA includes an element of term risk.
Parties know in advance how much interest will be due under SONIA at the end of the relevant
interest period.
SONIA is a "risk-free" rate because it does not include any premium for term (length of
borrowing) or credit risk (to account for the creditworthiness of the counterparty).
B is wrong: SONIA is a backward-looking rate.
C is wrong: See above.
D is wrong: As SONIA is a backward-looking rate, the amount of interest payable is ascertained
at the end of an interest period when the rates for the days in the relevant interest period are
known and the compounded rate can be finalised.
Question 5
Sunbeam Holdings plc ("Sunbeam") is looking to raise debt finance to assist with the acquisition
of the shares in a competitor company. It is looking for debt finance of approximately
£170,000,000. Sunbeam is registered in England and Wales and has a credit rating of AA from
S&P Global Ratings. Sunbeam's board is considering whether to raise the debt finance by an
issue of debt securities or a syndicated loan facility. Sunbeam has not issued debt securities
before.
Which ONE of the following statements is CORRECT?
A.
Any form of debt finance is likely to be expensive because Sunbeam has a poor credit
rating.
B.
The amount of debt finance required is too low to make an issue of debt securities
economically viable.
C.
The interest rate payable under a syndicated loan facility is likely to be lower than that
payable under an issue of debt securities.
D.
Upfront costs of an issue of debt securities will be high because Sunbeam has not
issued debt securities before.
The correct answer is D. A credit rating of AA from S&P Global Ratings is still investment grade
and, therefore, not a "poor" rating, even if it is not the highest possible rating.
A is wrong: A credit rating of AA from S&P Global Ratings is still investment grade and,
therefore, not a "poor" rating, even if it is not the highest possible rating.
B is wrong: The amount of debt finance required is significant and high enough to make an
issue of debt securities economically viable
C is wrong: The interest rate under an issue of debt securities is likely to be lower than under a
syndicated facilities agreement.
UNIT 2
PREP
Question 1
Which two of the following provisions in the term sheet are most likely to be expressed to be
legally binding?
An obligation on the borrower to provide the banks with financial information at regular intervals
and upon request.
An obligation on the borrower to pay the banks' reasonable costs and expenses incurred
in connection with the lending proposal, whether or not the borrower ever utilises the
facilities.
An obligation on the banks to treat as confidential any information that they have in
respect of the borrower, its business and financial condition and the circumstances
surrounding the facilities.
A representation by the borrower that it has the capacity to enter into the facilities agreement
and that it has taken all steps necessary to authorise its directors to sign the facilities agreement
on its behalf.
The right answer is B and C. Provisions A and D are likely to appear in some form in the
facilities agreement. They would certainly not become legally binding upon signing the term
sheet.
Question 2
A clause in a facilities agreement which requires the borrower to pay additional interest if it fails
to pay any amount when due is always enforceable under English law.
Is this statement true or false?
False
That's right. The statement is false. Remember that a facilities agreement is simply a contract,
and therefore basic contract law applies. If the level of default interest could be regarded as
punitive, then it may be declared void.
Question 3
Which one or more of the following is a feature of SONIA?
It is an overnight rate.
It is a backward looking rate.
It can be calculated in advance for any interest period
It is a near 'risk free' rate.
You correctly selected all of Answers A, B and D.
SONIA is a backward looking overnight near risk free rate. Answer C is therefore incorrect as
SONIA cannot be calculated in advance.
Question 4
Interest on a loan at an interest rate linked to SONIA is sometimes described as "floating rate"
interest.
This means that the interest rate chargeable on a particular loan may fluctuate from day to day
whilst the loan is outstanding.
True or false?
True
Well done. The statement is true.
SONIA is an overnight rate which will fluctuate from day to day. At, or more likely towards, the
end of each interest period a calculation will be carried out to arrive at a compounded SONIA
rate for the relevant period.
Question 5
Which of the four following stages of a bank lending transaction occurs last in time?
3. The bank instructs solicitors to prepare the first draft of the facilities agreement and to carry
out legal due diligence.
4. The facilities agreement is negotiated and signed.
1. The bank commences financial due diligence on the borrower.
2.
The term sheet is prepared by the bank and signed by the borrower.
The likely sequence of events will be C, D, A, B.
CONSOL
Question 1
A facility agreement for a term or revolving credit facility will contain conditions precedent. From
the bank's perspective, the agreement should be drafted so that the conditions precedent must
be satisfied before which of the following?
The utilisation of the facility by the borrower.
The correct answer is D.
Note that, once signed, the agreement will bind but there is no automatic right to borrow.
However, the bank will be able to monitor the borrower in accordance with the terms of the
facility agreement and to enforce any obligations of the borrower to pay fees, costs and
expenses, even if the facility is never utilised.
Question 2
Which of the following documents is least likely to contain provisions protecting the arranger
from loss or liability in relation to information which it provides to syndicate banks in the
course of putting together the transaction?
The mandate letter
The fee letter
The facility agreement
The information memorandum
Correct - well done. The correct answer is B.
A fee letter will set out the details of the arranger's (and sometimes the facility agent's) fee,
payable by the borrower. The letter is often confidential between the arranger (and the facility
agent where relevant) and the borrower.
Although the arranger will assist the borrower in putting together the information memorandum
which is used to attract banks into the syndicate, the arranger will insist on disclaimers in the
information memorandum to the effect that the document is the responsibility of the
borrower and that the arranger has not independently verified its contents. It will also
state that the information memorandum is not a recommendation by the arranger and
that banks must rely on their own credit analysis of the borrower when deciding whether
or not to join the syndicate. The efficacy of such a disclaimer has been recognised in the
cases of IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811 and Raiffeisen
Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm).
The mandate letter will require the borrower to confirm its responsibility for the information it
provides to the arranger and to indemnify the arranger in relation to any losses suffered by the
arranger in connection with that information.
Finally, the facility agreement will contain provisions confirming that the arranger is not
responsible for the information provided by the borrower and that the banks are responsible for
their own credit analysis.
Question 3
A syndicate of banks led by Portland Bank plc (“Portland”), as arranger, agent and security
trustee, is making a term facility of £100,000,000 available to Worthington Limited
(“Worthington”), pursuant to a syndicated facilities agreement (the “Facilities Agreement”).
Worthington’s parent company, Worthington Holdings Plc (“Holdings”) will guarantee
Worthington’s obligations to the syndicate under the Facilities Agreement. Both companies will
give security in respect of their liabilities to the syndicate.
Worthington has never entered into a syndicated facility before and its directors want to know
more about the role of an agent bank.
Which ONE of the following statements about the role of an agent bank under a typical
syndicated facilities agreement is CORRECT?
The agent must usually ensure that all the conditions precedent are satisfied; apart from
that, its duties are mainly administrative and its liability to the other syndicate members
is severely restricted.
Feedback
Correct. Statement D correctly summarises the role of the agent bank under a typical
syndicated facilities agreement.
Question 4
Which of the following statements about the facility agent (sometimes simply referred to as the
agent) of a syndicated credit facility is correct?
A.
The facility agent will be responsible for collecting all payments due from the
borrower under the facility agreement and forwarding each bank's share to it.
B.
The facility agent is the agent for the borrower.
C.
The facility agent will be responsible under the facility agreement for checking
information received from the borrower before it is forwarded to the syndicate members.
D.
There is no clause in the facility agreement entitling the facility agent to resign.
Correct. The right answer is A.
Answer B is incorrect because the facility agent is appointed to act as agent for the banks not
the borrower.
Answer C is incorrect because, like the arranger, the facility agent will not take responsibility for
any information provided to it by the borrower. It will simply act as a postbox. Of course, if (as is
likely) it is also a syndicate member, it will need to check the information at some stage, but it
will then be doing so for its own benefit, not in its capacity as facility agent.
Answer D is also incorrect as there should be a clause in the facility agreement entitling the
facility agent to resign.
Question 5
Why might a borrower want a voluntary cancellation clause in its facility agreement?
To reduce the interest it has to pay.
To cancel the commitment of one bank in a syndicate of banks because it does not want to
borrow from that particular bank.
To reduce the commitment fee it has to pay.
To reduce the amount it is obliged to borrow.
Correct. The right answer is C. A voluntary cancellation clause gives the borrower the
ability to cancel part of the available facility to avoid having to pay a commitment fee on
that part of the facility. Lenders often charge a commitment fee on unutilised but available
facility to reflect the cost of having to have capital available to meet a borrower's utilisation
request. As the cancellation is of unutilised facility there was no interest payable anyway so A is
wrong. B is wrong because any cancellation reduces the commitment of each bank rateably. D
is wrong because the borrower is never under an obligation to borrow.
UNIT 3
PREP
Question 1
Assume that there has been a breach of representation at the time that a Loan is borrowed, and
that the Finance Parties are not prepared either to waive the breach or negotiate an amendment
to the Facilities Agreement.
Unless the matter can be resolved, the Finance Parties are likely to sue the borrower for
damages.
The statement is false.
The ultimate remedy appropriate for breach of representation in a Facilities Agreement is
the immediate repayment of the Loan, together with interest and any other amounts
outstanding under the Agreement.
Question 2
When negotiating representations to be made by the Obligors in a facility agreement, the
Arranger's solicitor's objective is to allocate responsibility to the Obligors only for matters
which are within the Obligors' knowledge or control.
The statement is false.
The Arranger's solicitor's objective is to allocate risk to the Obligors for various matters, whether
or not they are within the knowledge or control of the Obligors.
If the relevant event occurs, the syndicate will want to have the option of demanding immediate
repayment of the facilities: regardless of whether or not the Obligors caused or knew about the
event.
Question 3
On which one or more of the following occasions is the "No proceedings pending or threatened"
representation set out at Clause 18.12 of the Project Emerald Facilities Agreement made or
deemed to be made?
On the date that the Facilities Agreement is signed.
On the date of any Utilisation Request.
On the last day of each Interest Period.
On every date that an interest payment or repayment of principal is due under the Facilities
Agreement.
You are told at the beginning of Clause 18 of the Facilities Agreement that all the
representations are given on the date that the Facilities Agreement is signed, so statement A is
correct. Clause 18.12 is also a Repeating Representation (see the definition of Repeating
Representations in Clause 1). This means that the representation will be deemed repeated on
the dates set out in Clause 18.18 of the Facility. These include the date of each Utilisation
Request so statement B is also correct.
Clause 18.18 (a) also states that the Repeating Representations are deemed to be made on the
first day of each Interest Period. Statement C, which refers to the last day of each Interest
Period, is therefore incorrect. Clause 18.18 makes no reference to any deemed repetition of the
Repeating Representations on every date that an interest payment or repayment of principal is
due under the Facilities Agreement, so statement D is also incorrect.
Question 4
Assume for the purpose of this question that you act for Elderberry Holdings plc and the other
companies in its group (the "Group") and that the Facilities Agreement was signed two years
ago. You receive an email from the Group's finance director telling you that she has discovered
that the Group is in breach of one of its financial covenants. She says that the figures only just
fail to meet those agreed with the syndicate.
Which one or more of the following courses of action would you advise your client to take to
minimise the potential difficulties that this may cause? (The Elderberry Holdings plc Facilities
Agreement is in the same form as the Project Emerald Facilities Agreement and you are
advised to consider Clauses 19, 22 and 34.)
Do nothing and wait until the syndicate contacts the Group to discuss the breach.
Prepare a disclosure letter admitting the breach.
Inform the Agent of the breach without delay.
Request a waiver of the breach.
Answer A is incorrect. Clause 19.5(a) provides that an Obligor must notify the Agent of any
Default promptly upon being aware of its occurrence. A breach of a financial covenant is an
immediate Event of Default under Clause 22.2 and should therefore be notified promptly to the
Agent as set out in Answer C. A failure to notify the Agent would itself be a potential Event of
Default under Clause 22.3(a). Clause 22.3(b) contains a remedy period.
Answer B is incorrect, because a disclosure letter is only effective in relation to breaches of
representations and covenants at the time of execution of the facility agreement (although such
letters are rarely used these days). A disclosure letter cannot be effective in addressing
subsequent breaches.
Answer D is correct. Under Clause 34.1, the Obligors and the Majority Lenders can agree a
waiver of any term of the facility agreement. If the breach is only minor and unlikely to be
repeated on the next occasion that the covenants are tested, then the syndicate may well be
happy with this approach.
This question is intended to help you to appreciate that it is essential for borrowers to be honest
with their lending banks as this will be regarded favourably and as a sign of acting in good faith.
It is less likely to lead to the banks accelerating the facility and requiring immediate repayment
of the facilities or insisting on more draconian terms if the facilities are to remain in place.
Question 5
Which one of the following obligations of the Obligors is most favourable to the lenders?
Each Obligor will use best endeavours to....
Each Obligor will use reasonable endeavours to.....
Each Obligor will......
Each Obligor will endeavour to.....
That is correct. The best wording for the lenders is that each Obligor gives an absolute
undertaking to perform the required act. Second best is that each Obligor will use best
endeavours to perform that act. Still more preferable for the Obligors is a requirement that each
only use reasonable endeavours to perform the act, and better still for them is a mere
requirement that they should endeavour to perform the act with no qualification as to how hard
they need to try to do this.
CONSOL
Question 1
You act for Sharpley Limited in its negotiation of a facilities agreement for term and revolving
credit facilities to be entered into by a syndicate of banks led by Wellingtone Bank plc, as agent
and arranger. The draft agreement provides that some representations are to be given only on
the date of the execution of the facility agreement and on first utilisation. However, others are to
be repeated after those dates (the “Repeating Representations”).
A.
Representations each time it utilises one of the facilities.
B.
IV It would be reasonable for your client to be deemed to repeat the Repeating
Representations on the first day of each interest period.
It is not unreasonable for a lender to want representations to be repeated at intervals throughout
the life of the loan, typically on each date that the facilities are utilised and on the first day of
each interest period. A negotiation will need to be had over which of the representations are to
be repeated.
It is not reasonable for your borrower client to be expected to repeat the Repeating
Representations every day until all amounts outstanding under the facilities have been repaid,
so option III is incorrect.
Question 2
It is a condition precedent to utilisation under a credit agreement that your firm provides a legal
opinion to the syndicate that the finance documents in relation to the transaction (the “Finance
Documents”) are valid, binding and enforceable. A new account manager at Marston has asked
you to explain what he can expect to see in the legal opinion.
Advise the account manager at the Bank who is acting as agent and arrangement which ONE of
the following provisions he would be LEAST LIKELY to find in a typical legal opinion.
An opinion that each of the obligors that is a party to the Finance Documents has the capacity,
power and authority to enter into and deliver the Finance Documents to which it is a party.
An opinion that all the signatures on the Finance Documents are genuine.
An assumption that all board meetings at which the obligors passed the resolutions approving
the Finance Documents were properly convened and quorate.
A reservation or qualification to the effect that the enforceability of the Finance Documents may
be affected by insolvency law.
Of the statements listed, the least likely to be within a typical opinion is an opinion that all the
signatures on the Finance Documents (as defined above) are genuine; rather, it would be
unreasonable to expect an opinion to authenticate the validity of signatures. The genuineness of
the signatures will be an assumption on which the opinions are based.
Question 3
A borrower under a syndicated credit agreement has given written confirmation to the bank, who
is acting as both agent and arranger, of its intention to ensure that a wholly-owned subsidiary
will be able to fulfil its obligations under the finance documents to which it is a party.
Which ONE of the following statements CORRECTLY DESCRIBES the legal effect of the
borrower's confirmation?
The borrower has provided a comfort letter in relation to its wholly-owned subsidary's
obligations under the finance documents.
Question 4
Your firm provided a legal opinion in relation to a £20,000,000 syndicated term loan (the "Legal
Opinion"). The Legal Opinion includes a statement that a particular company, that is part of the
group of companies entering into the syndicated loan, is incorporated in England.
This statement is likely to appear within which section of the Legal Opinion? The opinion
section
Question 5
Your firm provided a legal opinion in relation to a facility agreement based on the LMA standard
form documentation.
II It is likely that it will be referred to in the “Representations” section of the facility
agreement .
III It is likely that it will be listed as a “Condition Precedent” in the Facility Agreement.
The legal opinion is likely to be referred to in the “Representations” section of the facility
agreement and is likely to be listed as a “Condition Precedent” in the facility agreement.
UNIT 4
PREP
Question 1
BigBank plc has lent Coogan Limited £20,000. The loan has been guaranteed by its sole
director, Leon. Coogan Limited has defaulted on the loan.
In the absence of any provisions in the guarantee to the contrary, BigBank plc may only enforce
the guarantee contract against Leon to the extent that it can enforce the facility agreement
against Coogan Limited.
False
That is correct. A guarantee only creates a secondary obligation so if the primary obligation fails
for any reason, then the guarantee falls away.
Note that, in practice, BigBank is unlikely to face any legal bar to enforcing against Leon
because most standard bank guarantees will contain one or more provisions that permit the
bank to enforce the guarantee independently of the underlying facility agreement.
Question 2
Under the Companies Act 2006, the directors of a company need no longer act in accordance
with its constitution.
The statement is false. Under s. 171 of the Companies Act 2006, a director of a company must
still act in accordance with that company's constitution.
Question 3
When dealing with a corporate guarantor, a bank is likely to be concerned with which one or
more of the following issues:
The authority of that company's board to commit the company to the guarantee.
Whether or not the guarantee is ultra vires the company.
Whether or not the directors of the company can show that there is sufficient commercial benefit
to the company in giving the guarantee.
Any contractual restrictions on the company which may prevent it from giving the guarantee.
 A bank will want comfort on all these issues.
Question 4
Bedale Glazing Limited ("Bedale") has guaranteed the liabilities of its parent company, Trico
Limited ("Trico"), to NatMid Bank plc ("NatMid"). Trico has borrowed money from NatMid to
finance a property development. Both companies are registered in England and Wales.
All necessary steps have been taken under all applicable legislation to validate the guarantee,
which was executed as a deed. NatMid demands payment under the guarantee and Bedale
pays NatMid accordingly.
No challenge may now be made to the payment.
The statement is false.
If Bedale was insolvent when it made the payment to NatMid and goes into liquidation or
administration within the next six months, the liquidator/administrator may challenge the
payment as a preference given to NatMid. In fact, if the liquidator/administrator believes that
Bedale is actually preferring its parent, Trico, by making payment under the guarantee to save
Trico from paying off its own debt, then the payment can be challenged if Bedale goes into
liquidation or administration up to two years later. If successful, NatMid will have to return the
payment to Bedale. Bedale will have a defence if the court is satisfied that the company made
the payment with no intention to prefer. However, most guarantees will contain a clause
providing that the guarantee will be reinstated if payment is clawed back as a result of a
successful challenge to the payment.
Question 5
Jennifer Taplow,a director and shareholder of Cutlass Foods Limited, has been asked by the
company's bank to provide a continuing guarantee of all the company's liabilities to the bank. No
banking facilities have yet been made available to the company.
Which one or more of the following items should Jennifer verify before giving the guarantee?
Jennifer's own financial position.
The financial position of Cutlass Foods Limited.
The identity of any other guarantor of the company's liabilities.
The exact wording of the guarantee the bank requires.
That is correct. Jennifer should verify all of these items. Her own financial position is relevant to
her ability to pay under the guarantee if the bank demands payment. The financial position of
the company is relevant to the likelihood of the bank making demand under the guarantee. The
identity of any other guarantor is relevant to the likelihood of whether, if a demand is made,
Jennifer will ultimately have to pay the full amount of the company's debt to the bank. The exact
wording of the guarantee should be checked. Guarantees given by individuals are usually
limited in amount and/or time.
CONSOL



Question 1
Please select the statement which best completes the sentence below.
Guarantees are sometimes referred to as quasi-security because:
They are secondary contracts which may fail if the contract creating the primary obligation is
void for any reason.





















Whilst they are designed to reassure the beneficiary, they do not create any rights in favour
of the beneficiary over the assets of the guarantor.
They are created by someone other than the borrower.
If the guarantor settles the borrower's debt, it is entitled to any security held by the
beneficiary of the guarantee in relation to that debt (subject to any agreement to the contrary
in the guarantee).
Feedback
That's right. Answer B is correct. A guarantee will provide comfort to the beneficiary that it
will be repaid by the guarantor if the borrower defaults. However, it does not constitute
security because it does not create a "right in rem", that is, any rights over the assets of the
guarantor. Compare this with a charge which does create rights in favour of the chargee over
the assets of the chargor.
The other statements are true but do not explain why guarantees are sometimes referred to
as "quasi-security".
Question 2
Which of the following statements about the execution of a guarantee is correct?
Execution of the guarantee as a deed is necessary to minimise the risk that the validity of the
guarantee contract may be challenged successfully on the ground of lack of consideration.
Feedback
Well done. Answer D is correct. Note that a guarantee is simply a contract, albeit one for
which consideration may be difficult to establish, given that the beneficiary of the guarantee
provides benefit to a third party. Execution of a contract as a deed extends the usual
limitation period from 6 years to 12 years from the date on which the cause of action arises.
Question 3
Barfax Bank plc has agreed to lend £1 million to Genco Limited ("Genco"). Genco's parent
company, Conran Fabrications Limited ("Conran"), has agreed to give a guarantee and
indemnity in relation to Genco's liabilities to the bank.
Which one of the following statements about the lending arrangements is correct?
A material variation of the terms of the facility agreement will discharge Conran's liability
under the guarantee clause, unless the guarantee states otherwise.
Well done. Answer A is correct.
Note that, for a variation of the underlying contract to discharge a guarantee, the variation
must be "material". Discharge of the guarantee by variation may be avoided if the guarantor
agrees in advance that the variation may be made. An indemnity is a primary obligation and
so will remain unaffected by any variation of the facility agreement, although it is good
practice to get the indemnifier's prior written consent to any such variation.
Remember that there are limits to the effectiveness of any guarantee clause purporting to
reverse the common law rule - see the Triodos Bank case.
Question 4
Your client, Joanna Brewer, lent £50,000 to Landmark Design Limited ("Landmark") six years
ago. Joanna is a shareholder of Landmark. At the time it was agreed at a board meeting that
the directors of Landmark would guarantee Landmark's indebtedness to Joanna, but there is
no record of this decision in the relevant board minutes.
Landmark still owes Joanna £17,000 and is in financial difficulties. Joanna would like to know
if she can rely upon the guarantee should Landmark become insolvent.
Which of the following reasons is most likely to prevent Joanna relying upon the purported
guarantee?
The guarantee is invalid because it is not evidenced in writing.
You rightly chose answer C. Section 4 of the Statute of Frauds 1677 requires guarantees to
be evidenced in writing. (Note that if this were an indemnity, such a criterion would not have
to be fulfilled.)
Answer A and answer B are incorrect as there is nothing on the facts to suggest that
shareholder approval was required or that the board meeting was inquorate.
Answer D is incorrect. Even if the guarantee were a transaction at an undervalue, it was
given well outside the relevant time under s. 341 of the Insolvency Act 1986. Remember that
it is the directors giving the guarantee, not the company.





Question 5
Your client, Mutual Assurance Bank plc ("Mutual"), has granted a term facility to Total
Limited ("Total") and has asked for the facility to be guaranteed by Total's parent, Total
Holdings plc ("Holdings"). Holdings has refused to give a guarantee but has offered a
comfort letter.
Which one of the following statements is correct?
Provided it is properly drafted, a comfort letter will not be legally binding upon Holdings but
should offer some reassurance to Mutual that Holdings knows and approves of Total's
liabilities and current business activities.
Answer A is correct. A comfort letter should provide Mutual with some reassurance as to
Holdings' support for Total. However, provided that it is properly drafted by Holdings'
solicitors it will not be legally binding (so answer C is incorrect), nor make any promises or
guarantee to repay Total's obligations under the facility (so answer D is also incorrect).
Answer B is incorrect as a comfort letter will not contain any indemnity.
UNIT 5
PREP















Question 1
A bank that takes a legal mortgage over land in accordance with the Law of Property Act
1925 (the "LPA 1925") thereby becomes the registered owner of that property. True or false?
T
True
F
False
Feedback
That is correct. The statement is false. For most assets, a bank taking a legal mortgage or
legal assignment over an asset becomes the legal owner of the asset secured. However,
under s87 LPA 1925 (as amended by the Land Registration Act 2002), a legal mortgage over
land must be created by a "charge by deed expressed to be by way of legal
mortgage". Legal title is not thereby transferred to the mortgagee, which instead receives
rights equivalent to granting it a 3,000 year lease (in the case of freehold land) or a lease for
one day less than the mortgagor's lease (in the case of leasehold land).
Question 2
Cyclon plc granted a fixed charge over a 13% shareholding it held in another company. The
shares were fully paid. Some years later, Cyclon plc went into liquidation. This particular
charge was not registered at Companies House.
The liquidator is therefore permitted to treat the charge over the shares as void for want of
registration under the Companies Act 2006. True or false?
T
True
F
False

























Feedback
Correct. The statement is false. Pursuant to s.859A of the Companies Act 2006, all charges
created by a company are registrable, unless they fall within a narrow group of exceptions.
Charges over shares are, strictly speaking, exempt from registration under the Companies
Act 2006 because of the effect of the Financial Collateral Arrangements (No. 2) Regulations
2003 (as amended). However, in practice, security over shares is usually registered, even
when registration is not strictly required, because often the share security document covers
more than just the shares, thereby giving rise to the concern that payments on the shares
(e.g. dividends) may be book debts and, therefore, the security may be registrable.
Question 3
Which one of the following statements is correct under English law?
A charge by way of legal mortgage (Charge A) granted by A Ltd (incorporated in England)
over registered freehold land in England must only be registered at Companies House.
A charge (Charge B) granted by B Limited (incorporated in England) over land in Ruritania
must only be registered at the Ruritanian land registry.
A charge by way of legal mortgage (Charge C) granted by D plc (incorporated in Wales) over
registered freehold land in England should be registered at HM Land Registry and registered
at Companies House.
Feedback
That's right. Answer C is correct. A charge by way of legal mortgage created by a company
incorporated in Wales equates to a charge created by a UK-registered company for the
purposes of s. 859A Companies Act 2006 (the "Act") and must be registered at Companies
House as well as in any other relevant registry.
Statement A is incorrect. Registration at Companies House is necessary, but in addition
Charge A must be registered at HM Land Registry. (Priority between legal mortgages over
registered land is determined by the order that they appear on the charges register at HM
Land Registry, not by their date of creation.)
Statement B is also incorrect. Registration at the Ruritanian Land Registry may be required
under Ruritanian law, which is the lex situs. However, B Limited is incorporated in England,
and so, Charge B must also be registered at Companies House in accordance with s. 859A
of the Act, being a charge created by a UK registered company.
Question 4
Which one of the following best describes the key feature of a mortgage?
The beneficiary of the mortgage takes rights over the asset
The beneficiary of the mortgage takes possession of the asset.
The beneficiary of the mortgage takes title to the asset or, alternatively, rights equivalent to
those enjoyed by a title holder.
The beneficiary of the mortgage retains possession of the asset.
Feedback
That is correct.
A mortgagee obtains title to the asset (save in the case of a mortgage over land where it
obtains equivalent rights). A is the key feature of a fixed charge (or a floating charge). B is
the key feature of a pledge. D is the key feature of a common law lien.
Question 5
Which one or more of the following are the characteristics of a legal assignment by a
borrower to a bank of rights under a contract between the borrower and one of its key
customers?
Written notice of the assignment is given to the customer.
The bank may sue the customer direct.
Feedback

That is correct. For an assignment to be legal rather than equitable, written notice must be
served in accordance with s136 Law of Property Act 1925. Note however that written notice
alone will not necessarily be sufficient to make an assignment legal as opposed to equitable.
For example, an assignment of part will always be equitable even if notice is given.
You should also remember that it is not possible to take a legal assignment over future
choses in action.
CONSOL
 Question 1
 Which of the following is not a reason why a bank would wish to take security over assets
owned by its borrower?
 To prevent the borrower from selling those assets until the loan has been repaid.
 To enhance the bank's chances of recovering the debt owed to it if the borrower
defaults.
 To entitle the bank to sell the assets in respect of which the security is granted and to repay
itself from the proceeds of sale.
 To prevent the borrower from using the assets day to day in the course of its business at any
time until the loan is repaid.
 Feedback
 Statements A, B and C are correct, whereas D is not.
All types of security will inhibit the borrower's ability to deal with the asset following
enforcement by the bank. The only type of security that prevents the borrower from making
use of the asset before enforcement is a pledge. A bank would not, however, take a pledge
in order to prevent daily use of the asset, but rather to stop the borrower from disposing of
the asset. (In any event, a bank is likely to look on a pledge as more of a theoretical
possibility than a real one in most circumstances.)














Question 2
Which one of the following statements about the rights of the holder of a fixed charge (in their
capacity as chargee) is incorrect?
The holder of a fixed charge has a power of sale in relation to the charged asset.
The holder of a fixed charge can appoint an administrator provided that it notifies the court of
the appointment and the administrator's consent to act.
The holder of a fixed charge can appoint a receiver.
The holder of a fixed charge has the right to apply to the court for the appointment of an
administrator.
Feedback
Well done. You correctly identified that statements A, C and D are correct.
Statement B is an incorrect statement. The holder of a qualifying floating charge is entitled to
appoint an administrator and notify the court of the appointment and the administrator's
consent to act, but a fixed chargeholder is not. However, the holder of a fixed charge is a
creditor and therefore entitled to ask the court to appoint an administrator under paragraph
12(1)(c) of Schedule B1 of the Insolvency Act 1986, and so Answer D is a correct statement.
In practice, it is very rare that a fixed chargeholder would do this.
Question 3
Steel Bank plc wishes to take security over the 95 year lease Norman Estates Limited holds
over a business unit.
Which of the following statements about security over leases is correct?
If the charge is not registered at Companies House it will be void against Norman Estates
Limited.
A mortgage over the lease will usually require the consent of the landlord and it should be
registered under the Companies Act 2006 and at the Land Registry.









A floating charge will be the most appropriate form of security for Steel Bank plc.
It is not possible to take a legal mortgage over a leasehold interest.
Feedback
That's right. Answer B is correct. A charge over leasehold property will usually need the
consent of the landlord and will need to be registered at both Companies House and the
Land Registry.
Question 4
Holdings has agreed to provide security over its shareholding in Worthington in support of its
guarantee to the syndicate. Portland wants minimal administrative duties as possible in
relation to its role as security trustee but, otherwise, wants to take the best security available
to it over the shares.
Which one of the following forms of security best meets Portland’s requirements?
Equitable mortgage
An equitable mortgage only transfers a beneficial interest in the asset to the mortgagee with
legal title remaining with the mortgagor. If a legal mortgage were taken Portland would
acquire the right to receive the dividends payable on the shares and the voting rights. As
long as there is no event of default under the facility this is unlikely to reflect the parties
intentions.
UNIT 6
PREP
Question 1
Which one of the following would you not expect to be included in the conditions precedent
schedule of a facility agreement?
Certified copies of the board resolutions authorising the entry into the Finance Documents.
The signed and dated term sheet.
A valuation of any real estate over which security is to be taken.
The latest audited accounts of the borrower.
The signed and dated term sheet would not be CP. The term sheet is usually agreed and signed
before work on the facility agreement is even started. It is used to instruct the lender's/arranger's
lawyers and its provisions are documented in the facility agreement.
Question 2
Assume that you are acting for the agent and arranger on a syndicated facility and you receive
the first mark-up of the draft facility agreement back from the borrower's solicitor. The original
draft facility agreement provided that certain of the conditions precedent must be "in form and
substance satisfactory to the Agent". The borrower's solicitors have deleted this wording
throughout the conditions precedent schedule.
You should agree to the deletion of this wording as it is too vague and could cause problems for
the borrower at completion.
False
Well done. The statement is false. This kind of wording is market standard in facility
documentation and the agent will want a reasonable degree of discretion when making a
decision as to whether or not a condition precedent has been satisfied. Often it is not possible to
know what evidence will be available or required early on in a transaction when due diligence is
still ongoing - and conditions precedent are revised constantly during negotiations.
As the agent's solicitor, you need to preserve your client's ability to reject documents and other
material proffered by the borrower as evidence of satisfaction of conditions precedent if they are
inadequate. Note however, that the more discretion your client has to determine the
adequacy or otherwise of conditions precedent, the more exposure it has to the
syndicate banks if it gets it wrong. Consequently it is in the interests of both the agent and
the borrower to agree the form of as many conditions precedent as possible in advance of
completion so that there are no last minute surprises.
Question 3
A syndicated facility agreement for a term or revolving credit facility will contain conditions
precedent. From the lending banks' perspective, the agreement should be drafted so that the
conditions precedent must be satisfied before which of the following?
The approval of the lending proposal by each lending bank's credit department.
The execution of the facility agreement by each of the lending banks.
The facility agreement becoming binding in any respect.
The utilisation of the facilities by the borrower.
Note that, once signed, the agreement will bind but there is no automatic right to borrow,
so answer C is incorrect. However, the agent bank will be able to monitor the borrower in
accordance with the terms of the facility agreement and to enforce any obligations of the
borrower to pay fees, costs and expenses, even if the facilities are never utilised.
The stages referred to in answers A and B are too early in the lending transaction and so are
incorrect.
Question 4
For the purposes of this question, assume that it is the day before the proposed signing date for
the Facilities Agreement and that you act for Danton Bank plc in its capacity as Arranger. You
receive a telephone call from the Borrowers' solicitors saying that the Borrowers will not be in
a position to satisfy one of the conditions precedent set out in the Facility Agreement on
the signing date but that they would still like to utilise the Facilities immediately if
possible.
Which one or more of the following alternative courses of action are open to the syndicate?
Call an Event of Default under the Facilities Agreement.
Refuse to sign the Facilities Agreement until all conditions precedent can be satisfied.
Sign the Facilities Agreement but refuse to lend until all conditions precedent can be
satisfied.
Sign the Facilities Agreement and allow the Borrowers to utilise the Facilities
immediately, but make the problematic condition precedent a condition subsequent.
Each of the alternatives set out in answers B, C and D are open to the syndicate.
As the Facilities Agreement has not yet been signed, there has been no Event of Default
and so Answer A is incorrect. In any event, failure to satisfy a condition precedent will mean that
the banks are not obliged to lend when the agreement has been signed (so Answer C is
correct), but will not usually be an Event of Default.
The banks could refuse to sign the Facilities Agreement until the Borrowers are in a position to
satisfy all conditions precedent, and if the problematic condition precedent relates to a key part
of the transaction that is being funded, then they may decide to take this course of action.
Answer B is therefore correct.
However, if the condition precedent is a relatively minor one, then it is possible that the banks
will agree to sign the Facilities Agreement and allow the Borrowers to utilise the Facilities
immediately, but will make the unsatisfied condition precedent a condition subsequent, as set
out in Answer D. This means that they will require the satisfaction of the condition within an
agreed period of time after the Facilities Agreement is signed. This will be recorded in a side
letter to the Facilities Agreement which will provide that if the Borrowers fail to satisfy the
condition by the agreed date and do not obtain an extension of time or other waiver of the
condition, then this would be an Event of Default under the Facilities Agreement.
Question 5
You are a solicitor qualified in English law working in a firm based in London. You are acting for
the arranger on a syndicated facility and are required to give a legal opinion on the
enforceability of the finance documents. One of the borrowers is incorporated under the laws of
Germany.
Which one of the following statements is correct?
Your firm can give the opinion and opine on the validity under English law of any English
law documents to which the German borrower is a party, but must include an
assumption that those documents will be valid and legally binding upon that borrower
under the laws of Germany.
The correct answer is C. Your firm can only opine on matters of English law and so answer D is
incorrect. However, the validity of the English law documents to which the German borrower is a
party can be covered by your opinion. However, you need to base this opinion on an
assumption that they will be similarly binding under German law.
You do not need to refuse to give any opinion or to insist on omitting any reference to the
German borrower or the documents to which they are a party so answers A and B are both
incorrect. However, you should advise the arranger that it should instruct German lawyers to
opine on the due incorporation of the German borrower and on the enforceability of the
documents into which it has entered under German law
CONSOL
Question 1
There is an Event of Default under a term and revolving facilities agreement which has
been documented using an LMA recommended form. Which one or more of the following
options are available to the syndicate of lenders?
I Treat the Event of Default as a 'drawstop' and refuse to make any further advances.
II Place the outstanding loans 'on demand'.
III Demand repayment of the outstanding loans.
IV Cancel the lenders' commitments.
Well done. The lenders have all four options.
The lenders could also use the event of default to negotiate changes to the terms and
conditions to reflect their increased risk.
Question 2
The relationship between a bank and a borrower has soured and both parties wish to terminate
it completely. In respect of which of the following facilities provided by the bank will this not be
achieved using an assignment?
A revolving credit facility before the final "roll-over" date.
A revolving credit facility after the final "roll-over" date.
A fully drawn term loan facility.
A partly drawn term loan facility, after the "availability period" has expired.
The correct answer is A. In the circumstances set out in B, C and D, the bank has no further
obligations to lend to the borrower so an assignment would achieve the objective. However, in
the case of A, the borrower can still request funds at the next "roll-over" date, and so the bank
still has obligations to the borrower. Obligations cannot be assigned.
Question 3
A syndicate of banks agrees to make facilities available to a borrower to finance the purchase
and renovation of a factory, provided the borrower grants a first legal mortgage over the factory
as security for the facilities. Which one of the following approaches is most likely to be taken by
the arranger's solicitor?
A.
The arranger's solicitor will not make the execution of the mortgage document a
condition precedent of utilisation of the facilities.
B.
The arranger's solicitor will ensure that there is a condition precedent in the facility
agreement that the borrower must ensure that the mortgage is executed and delivered to the
security trustee and registered at Companies House before it can utilise the facilities.
C.
The arranger's solicitor will ensure that there is a condition precedent in the
facility agreement that the borrower sign the mortgage and deliver it to the security
trustee or its solicitor before it can utilise the facilities.
D.
The arranger's solicitor will ensure that the execution of the mortgage document is a
condition subsequent to the utilisation of the facilities.
Well spotted. The correct answer is C. The key point here is that the borrower cannot actually
give the mortgage over the factory until it owns it. However, it needs the facilities to
purchase the factory. A condition precedent as set out in answer B is therefore clearly
unworkable.
However, the arranger's solicitor will not simply ignore the banks' requirement for security over
the factory as a condition precedent and so Answer A is incorrect. Generally speaking, the issue
can be resolved relatively quickly and so there is no need for it to be a condition subsequent
either so Answer D is also incorrect. If the money is being lent on the same day as signing takes
place, the entire transaction is treated as virtually simultaneous. A common approach in practice
is for the borrower to sign the mortgage document and deliver it to the solicitor acting for the
security trustee. The loan monies will then be used to purchase the land in question. The
security trustee's solicitor will then date the mortgage with the date that the land was purchased.
Answer C is therefore correct.
Question 4
Two investment companies are proposing to finance the expansion of a group of haulage
companies. Under this proposal, Abacus Investments Limited ("Abacus"), will lend €5,000,000
to Rembrandt Haulage Limited ("RH"). Brazier Finance Limited ("Brazier") will lend €5,000,000
to Rembrandt Transport Limited ("RT") which is a wholly owned subsidiary of RH. Brazier will
take legal mortgages over three of RT's warehouses.
Which one of the following statements will be true if the proposed funding goes ahead? (Please
ignore any contractual priority arrangements when considering your answer to this question.)
There will be no structural subordination on the facts described.
Brazier will be structurally subordinated to Abacus.
Abacus will be structurally subordinated to Brazier.
None of the above.
Answer C is correct.
Structural subordination arises where the senior creditor lends to a company which is
lower in the group structure than the company into which the junior creditor lends. Here,
therefore, Abacus will be structurally subordinated to Brazier, since Abacus will be
lending to RH, whilst Brazier will be lending to RT, the subsidiary.
This will put Abacus in a worse position than Brazier because Abacus could only look to
the value of RH's assets, which may only consist of the shares in RT, i.e. what is left after
RT's creditors (including, of course, Brazier) have been paid. Strictly speaking, this is not a
subordination of debt, but it has the same effect.
Question 5
An event of default triggered by cross-default is more favourable to the borrower than an event
of default triggered by cross-acceleration. True or False?
The answer is false. Cross-acceleration is more favourable to the borrower as it requires
the counterparty to the other agreement to take some action following the default under
that agreement. In contrast, under a cross-default event of default the counterparty only
has to be become entitled to take some action as a result of the default under its
agreement with the borrower
UNIT 7
PREP
Question 1
Which one or more of the following is correct?
The terms of a bond issue tend to be less onerous than the equivalent terms of a facility
agreement because:
It is generally speaking harder for a bond issuer to obtain waivers from bondholders
since it doesn't know who they are.
Bondholders aren't as careful as lenders.
It is easier for bondholders to exit their positions than lenders, simply by selling their
bonds in the secondary market.
There is always a trustee to step in on the bondholders' behalf.
Feedback
Well done. Statements A and C are correct.
Statement A is correct because, generally speaking, the issuer will not know who its
bondholders are, unless the issue is of definitive registered bonds (most aren't). If there is a
trustee, then it might be easier to obtain a waiver, but many bond issues do not have a trustee
structure (so statement D is false).
Statement B is incorrect. Bondholders will be just as careful in their investments as lenders
(many will be institutions such as pension funds which will be looking to safeguard the interests
of their beneficiaries).
Statement C is also true: any deterioration in the issuer's ability to service the bond will be
reflected in its credit rating and the price the bonds command in the market, so there is less
need for the terms to be onerous. Although it is not impossible for a lender to transfer its interest
under a facility agreement, any transferee bank will still want to be sure that the terms of the
facility agreement protect its interests to the maximum extent possible whilst not stifling the dayto-day business of the borrower.
Question 2
Which one or more of the following tradable securities contains an equity option?
A fixed-rate bond.
A floating rate note.
A convertible bond.
A warrant.
Feedback
That's right. Answers C and D are correct. A convertible bond allows the holder to subscribe for
equity in the issuer at a fixed price. A warrant entitles the holder to exchange it for equity in the
issuer.
Debt securities described purely as "fixed-rate bonds" and "floating rate notes" do not contain
equity options so answers A and B are both incorrect.
Question 3
Which one or more of the following notes or bonds does not have a coupon?
Convertible.
Zero.
Commercial paper.
Medium-term note.
Feedback
Well done. Answers B and C are correct. Both are issued at a discount to their face value which
makes up for the fact that they do not carry interest. The investor will receive 100% of the face
value at maturity and so its profit is the difference between what it paid for the debt security and
its full face value.
Question 4
In which of the following circumstances is commercial paper the most appropriate type of debt
security for the company to issue?
A company needs to raise significant amounts of finance over the next 12 months. However, it
does not need it all on day 1 and would like to draw it down as and when it needs it.
A company needs to raise finance and would ultimately like to do this by issuing equity.
However, the market value of its shares is currently quite low and therefore unattractive to
investors in the present climate.
A company requires finance to purchase and equip a factory site. It is not planning any further
capital outlay in the foreseeable future and this transaction is not confidential.
A company has short term cash flow problems. Its debtors are all due to settle their
accounts at the end of the month and this will relieve the cash flow problems. However, it
needs an interim source of finance to pay its employees.
Feedback
That is correct.
Commercial paper is appropriate for companies with short-term borrowing requirements and is
therefore suitable for use in situation D. It can be issued in large amounts but must be repaid
within a maximum of 365 days. Most issues are for periods of 1, 3, 6 or 9 months. Commercial
paper is issued under a programme, but the documents are shorter and simpler than those used
in an MTN programme. The issue of commercial paper constitutes a regulated activity for the
purposes of the Financial Services and Markets Act 2000 (see articles 5, 77 and 9 of the
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the "Order")).
Some issuers, such as banks, are authorised to conduct regulated activity by the FCA.
However, those who are not will need to compy with article 9(2) of the Order. This will require
them to issue only to professional investors and in minimum denominations of £100,000.
Compare this with the use of a medium term note programme which allows issuers to raise
larger amounts of money over a period of time using simpler documentation after the
programme has been set up. This would be sensible for the company in situation A as it already
knows it will have ongoing funding requirements. By contrast, the company in situation C only
requires finance for one specific purpose and could therefore issue a plain vanilla bond
(because the cost of setting up and maintaining an MTN programme would not be justified).
Finally, the company in situation B could issue convertible bonds and ensure that they contain
terms which permit the company to force the bondholders to convert the bonds into shares
when the market value of its shares increases. Convertible bonds pay a lower coupon which
may also be attractive for the issuing company.
Question 5
Which one or more of the following are, or are likely to be, the key features of a bond issue with
a trustee structure?
A.
If the bondholders wish to sue the issuer they must do this themselves.
B.
If the issuer wants an amendment or waiver of the terms of the bonds,a meeting of
the bondholders will not always be required.
C.
The issue has a principal paying agent.
D.
The issue is secured.
If a trustee is appointed, it will take the action on behalf of the bondholders and, unless the
trustee fails to act, bondholders are prevented from acting individually. Equally, the trustee will
be empowered to agree some amendments and waivers of the terms of the issue without
reference to a meeting of the bondholders. However, the trustee will only agree to such
amendments or waivers if it is satisfied that they will not be materially prejudicial to the
bondholders.
A trustee structure will never have a fiscal agent so a principal paying agent will be appointed
instead.
Finally, if an issue is secured, then a trustee must be appointed to hold the security.
CONSOL
 Question 1
 What type of event is an "Exchange Event" in relation to a debt security?
 It is an event which triggers the exchange of the coupon on the bond for a payment of
interest.
 It is an event which triggers the exchange of the bearer bond document against full
repayment of the principal of the bond.






















It is an event which triggers the exchange of a convertible bond for shares.
It is an event which triggers the right of a bondholder to exchange its interest in a global form
bond for a definitive bearer bond.
Feedback
Correct. The right answer is D. An "Exchange Event" is an event which triggers the right of a
bondholder to exchange its interest in a global form bond for a definitive bearer bond.
Interest will be paid against the presentation of a coupon attached to a bearer bond but this
will take place on specified interest payment dates rather than being triggered by any event
(other than an event of default which will entitle the bondholder to payment of all outstanding
interest and principal), so answer A is incorrect. Similarly an event of default may result in
early repayment of principal but an exchange event will not, so answer B is incorrect. Answer
C is also incorrect: the terms and conditions under which debt securities may be converted
into equity securities will be specified, but these circumstances are not referred to as
"Exchange Events". In practice, "Exchange Events" are limited in number because it is very
expensive for an issuer to produce definitive bonds.
Question 2
Which one or more of the following statements is correct?
I. The subscription agreement restricts the liability of each syndicate member to the
subscription for only those bonds it has agreed to buy.
II. The only purpose of the agreement among managers is to allocate the fees between
them.
III. The issuer can require any syndicate member to subscribe for the entire issue.
IV. Syndicate members' liability is joint and several.
Choose one of the following:
I only.
II, III and IV only.
II and III only.
III and IV only.
Feedback
No. Statements I and II are incorrect; statements III and IV are correct.
In fact, statement III is correct precisely because statement IV is correct. The issuer can
require any syndicate member to subscribe for the entire issue because syndicate members'
liability is joint and several. So the subscription agreement does not restrict the liability of
each syndicate member to the subscription for only those bonds it has agreed to buy and
statement I is therefore incorrect. For this reason the agreement among managers sets out
their liability as against each other to subscribe for their agreed allocation, and therefore
statement II is also incorrect.
Question 3
Which of the following statements is incorrect?
Bonds are generally more tradable than loans.
The term 'syndication' may be used in relation to both loans and bonds but means slightly
different things in each case.
Both the terms of a syndicated loan facility and those of a listed bond issue may be kept
confidential.
In the financial markets, the terms 'bond' and 'note' are almost synonymous.
Feedback
Well done. Statements A, B and D are all correct. Statement C is incorrect.
Statement A is true. Although there is an active secondary market in loans, interests in
bonds are inherently more tradable. This is because bonds are are usually listed and
interests in bonds are easily transferred via the clearing systems.
Statement B is also true: in a syndicated loan, each bank will lend money to the borrower in
proportion to its commitment in accordance with the terms of the facility agreement and each
bank will only be liable for its own commitment and not that of others; by contrast, on a bond
issue, the syndicate will underwrite the bond issue but will only actually subscribe for any
bonds (and hence provide funding to the issuer) if they are unable to find sufficient investors
to purchase the issue. In addition, the liability of the underwriting syndicate on the bond issue
is (usually) joint and several.
Statement C is incorrect: the listing of a bond issue will require a prospectus to be produced
which will contain, amongst other things, the terms and conditions of a bond. The prospectus
must be approved by the competent authority and published in accordance with the
Prospectus Regulation and Prospectus Regulation Rules. By contrast, the terms of a
syndicated loan facility can be kept confidential. The proposed terms and conditions will be
included in an information memorandum which will be used to attract banks into the
syndicate, but this document will only be available to banks which have given appropriate
confidentiality undertakings.
Statement D is true, although market practice sometimes dictates that one or the other term
will be appropriate. For example, a debt security with a floating rate of interest is always
referred to as a "floating rate note", never a "floating rate bond". Also, the term "bonds" is
usually used to describe stand alone issues, whereas the term "notes" is used for debt
securities issued under an MTN programme.


















Question 4
Which one of the following statements most accurately describes a high yield bond?
A bond issued with a credit rating that is not investment grade.
A bond upon which the issuer has defaulted.
A bond that did not sell well when it was issued.
A bond that an investor is trying to sell in the secondary market that no-one wants to buy.
Feedback
That's right. Answer A is correct. A high yield bond is one that is not investment grade. This
may mean that it is less popular with the market precisely because the chances of the issuer
defaulting on the bond are judged to be higher and this is reflected in the credit rating.
However, it is possible for the statements B, C and D to apply to investment grade bonds as
well.
Question 5
Which one or more of the following statements is or are correct in respect of a sale on the
secondary market of a fixed-income bond, when interest rates go up?
I The par value goes down.
II The market value goes down.
III The yield goes up.
IV The yield goes down.
Choose ONE of the following:
I only.
II, III and IV only.
II and III only.
III only.
Feedback
That's right. Statements II and III are correct.
When interest rates go up, the market value of the bond (ie: the price paid by the buyer)
goes down because the rate of interest the bond is paying is now less attractive by
comparison with the prevailing rate in the market. However, the yield (what a bond pays by
way of interest as a percentage of its value) will go up until the point at which the interest
paid (as a percentage of the bond's price in the market) is the same as prevailing interest
rates. The par (or 'nominal') value of the bond will never change, so statement I is incorrect
UNIT 8 PREP


























Question 1
The Professional Securities Market (the "PSM") is a UK regulated market - true or false?
T
True
F
False
Feedback
You are correct. It is false. The PSM is what is called an "exchange regulated" market. The
reason why the PSM was set up was to provide issuers market access without the need to
comply with what was then the EU Prospectus Regulation (now the UK Prospectus
Regulation) and the continuing obligations for issuers of securities admitted to trading on a
then EU (now UK) regulated market, such as periodic financial information requirements.
Question 2
Which one or more of the following matters are addressed in the subscription agreement?
Representations and warranties by the issuer that the information in any prospectus is
correct.
Allocation of bonds as between the managers.
Delegation of powers to the lead manager to act on behalf of the syndicate.
Selling restrictions.
Feedback
That is correct. The matters referred to in answers A and D are covered by the subscription
agreement. The allocation of bonds as between the managers and the delegation of powers
by the syndicate to the lead manager are both covered in the agreement among managers.
Question 3
Monway plc, a company registered in England and Wales, is intending to issue some bonds
(the "Bonds"). The Bonds are to be admitted to listing by the FCA and admitted to trading on
the Main Market of the London Stock Exchange. None of the exemptions in Articles 1(2) and
1(5) of the UK Prospectus Regulation apply.
Which one of the following statements is not a requirement of the Listing Rules in relation to
the Bonds?
The Bonds must be duly authorised according to the requirements of Monway plc's
constitution.
The Bonds must have an aggregate market value of at least £700,000 (unless bonds of the
same class are already listed), although the FCA may reduce this threshold if it is satisfied
that there is an adequate market for the Bonds even with a lower aggregate market value.
A prospectus in relation to the Bonds must be approved by the FCA and published.
The Bonds must conform with the laws of England and Wales.
Feedback
Well done. B is the incorrect statement. Under LR 2.2.7, the Bonds must have an aggregate
market value of at least £200,000 (unless bonds of the same class are already listed),
although the FCA may reduce this threshold if it is satisfied that there is an adequate market
for the Bonds even with a lower aggregate market value. The £700,000 threshold applies to
shares, not debt securities. LR 2.2.2(2) requires that the securities be duly authorised
according to the requirements of the applicant's constitution, so A is correct. LR 2.2.2(1)
states the securities must conform with the law of the applicant's place of incorporation, so D
is also correct. C is correct because LR 2.2.10 states that a prospectus must be approved
and published if this is required. As the Bonds are to be admitted to trading on the Main
Market which is a UK regulated market and none of the exemptions apply, a prospectus will
be required under Article 3(3) of the UK Prospectus Regulation.









Question 4
The requirements for when a prospectus must be produced differ between debt and equity
issues - true or false?
T
True
F
False
Feedback
You are correct. The statement is false - the requirements are essentially the same. The
provisions of Art 3 of the UK Prospectus Regulation apply to all "securities" as defined in
Article 2.1.24 of the UK Markets in Financial Instruments Regulation. It is the content
requirements that differ
CONSOL
 Question 1
 Which one of the following statements most accurately describes an investment grade bond?
 A bond issued with a credit rating.
 A bond issued with a S&P Global Ratings credit rating of BB or below.
 A bond issued with a S&P Global Ratings credit rating of at least BBB.
 A bond issued to raise money for investment purposes.
 Feedback
 That's right. Answer C is correct. Most bond issues will be given a credit rating by one of
number of credit rating agencies. The higher the rating the lower the risk of default. An
investment grade bond is a bond given a high rating (BBB or above as per S&P Global
Ratings).

















Question 2
'Delivery against payment' means which one of the following?
Payment of interest against delivery of a coupon.
Delivery of the bonds on signing against payment of the funds.
Delivery of the bonds on closing against payment of the funds.
Redemption of the bond on expiry by cancelling it on repayment of the principal.
Feedback
That's right. Answer C is correct. Payment of the subscription price for the bonds is made
against delivery at closing (not signing, so statement B is incorrect). The events in
statements A and D may well occur but they are not described by the term "delivery against
payment".
Question 3
Which one of the following best describes the distinctive characteristic of retail debt?
A nominal value of each security less than EUR 100,000.
A nominal value of each security less than or equal to EUR 100,000.
A nominal value of each security equal to or more than EUR 100,000.
A nominal value of each security equal to EUR 100,000.
Feedback



















That's right. Answer A is correct: a nominal value of each security less than EUR 100,000.
Once the EUR 100,000 denomination threshold has been reached or exceeded, the issue is
treated as wholesale.
Question 4
Which one of the following matters is not governed by the UK Prospectus Regulation?
When a prospectus is required in relation to debt securities.
The different formats that a prospectus in relation to debt securities can take.
The contents of a prospectus in relation to debt securities that will be listed and admitted to
trading on an exchange-regulated market.
The contents of a prospectus in relation to debt securities that will be listed and admitted to
trading on a UK regulated market.
Feedback
Well done. The UK Prospectus Regulation governs when a prospectus is required, the
format it can take and its contents when debt securities are to be listed and admitted to
trading on a UK regulated market.
Answer C is correct, because a prospectus (also sometimes referred to as "listing
particulars" or an "offering circular") for debt securities that are listed and admitted to trading
on an exchange regulated market does not have to comply with the requirements of the UK
Prospectus Regulation, although in practice its contents will be similar to those required by
debt securities which fall within the parameters of the so-called "wholesale" regime under the
UK Prospectus Regulation.
Question 5
The competent authority in the UK which approves the prospectus is the United Kingdom
Listing Authority which is part of:
The London Stock Exchange.
The Financial Conduct Authority.
The International Capital Market Association.
The Department for Business Innovation & Skills.
Feedback
That's right. The UK Listing Authority ("UKLA") is part of the Financial Conduct Authority
("FCA"). Note however that since 2017 the FCA has been phasing out the term "UKLA" to
refer to the FCA's primary market functions and now just uses "FCA".
UNIT 9 PREP
 Question 1
 The duty to deduct a sum representing income tax under section 874 of the Income Tax Act
2007(“ITA 2007”) does not apply to a payment of interest on a quoted eurobond (section 882
ITA 2007). Which one or more of the following statements about the “quoted eurobond
exemption” (“QEE”) is correct?
 The QEE is available to bondholders situated outside of the UK whose jurisdiction has a
double-tax treaty with the UK
 The QEE is not available to issuers of zero-coupon discounted bonds
 The QEE will not be available to bonds listed and admitted to trading on the Professional
Securities Market
 To take advantage of the QEE, a bondholder must submit an application for relief to HMRC
 Feedback
 Well done, the correct answer is B. A "quoted eurobond" is a security that is: (a) issued by a
company, (b) listed on a recognised stock exchange, and (c) carries a right to interest
(section 987 ITA 2007). As zero-coupon bonds are non-interest bearing there is no
obligation to withhold tax, and so the quoted eurobond exemption is not relevant (the
bondholder's "profit" on zero-coupon bonds is the difference between the amount the bonds
were issued for and their full face value on redemption). Answers A and D are incorrect as,
unlike other exemptions, the quoted eurobond exemption applies to the bond, rather than the
identity or status of the bondholder. Note that if the quoted eurobond exemption is available
to a bond issue it is not necessary to consider any other exemption. The Professional
Securities Market is part of the London Stock Exchange, which is a stock exchange
recognised by HMRC for the purposes of the ITA 2007 (section 1005), so answer C is also
incorrect.















Question 2
Bonza plc ("Bonza") has issued bonds which pay interest at a rate of 5.6% per annum,
payable in semi-annual instalments on 5 January and 5 July each year until the maturity date
of 5 January 2025.
The bonds are listed on the Official List and admitted to trading on the regulated market of
the London Stock Exchange. The bonds are held by a number of different investors based in
a variety of different jurisdictions. Which one or more of the following statements is correct?
Bonza is not required to withhold tax on its interest payments to any investor in the bonds,
because the quoted eurobond exemption is available under s882 Income Tax Act 2007.
Bonza is not required to withhold tax on its interest payments to any investor in the bonds,
because the interest payments do not constitute "yearly interest" as referred to in s874
Income Tax Act 2007.
Bonza is not required to withhold tax on its interest payments to any investor in the bonds,
because the UK resident company exemption is available under s933 Income Tax Act 2007.
If the bonds cease to be listed for any reason, Bonza may be required to withhold tax on its
interest payments to some or all of the investors in the bonds. In order to determine whether
withholding is required in this scenario, Bonza would need to know more about each investor
in the bonds.
Feedback
Well done. The correct answers are A and D.
As the bonds are listed on a recognised stock exchange, Bonza can rely on the quoted
eurobond exemption in s882 Income Tax Act 2007 ("ITA") and so is not required to withhold
tax under s874 ITA. Therefore answer A is correct.
If the bonds ceased to be listed, alternative exemptions could be available to Bonza in
respect of particular investors. For example, an exemption would be available under s933
ITA for payments made to an investor which is a UK resident company. Alternatively, an
exemption might be available for payments made to an investor located in a country which
has entered into a double tax treaty with the UK. However, Bonza would need to know where
each individual investor is located in order to determine whether any of these exemptions are
available. Therefore, if the bonds cease to be listed, Bonza may be required to withhold tax
on interest payments to some investors but not to other investors. Answer D is therefore
correct. Answer C is incorrect, as not all the investors are UK resident companies.
As the bonds have a term of at least 12 months, the interest payments do fall within the
meaning of "yearly interest" as that term is used in s874 ITA. This is discussed in Chapter 9
of Banking and Capital Markets by David Adams in relation to loans. The same analysis
applies in relation to bonds. Answer B is therefore incorrect.
Question 3
Alpha Bank wishes to divest itself of its participation in a syndicated facility
agreement. Alpha Bank has a strong relationship with the borrower and so wants to keep its
divestment confidential. Which one or more of the following methods for divesting a loan
participation will enable Alpha Bank to achieve its aim of keeping ts divestment confidential?
Novation
Equitable assignment
Legal assignment





















Funded sub-participation
Feedback
Well done. Options A (novation) and C (legal assignment) are incorrect because the
borrower will either have to consent to, or be notified about, the change of lender. When a
loan isnovated, the existing lender's rights and obligations are completely cancelled and
discharged with the new lender assuming new, but identical, rights and obligations. As a new
contract is entered into the borrower will have to be a party. One of the requirements for
creating a valid legal assignment is for the debtor (the borrower) to be notified of the
assignment (s.136 LPA 1925). Option B is correct because there is no requirement for a
debtor to be notified of an equitable assignment, and so the identity of the new lender can
remain secret. As there are significant differences between an assignment notified to the
debtor and one that is silent, it is common for a borrower to be notified about an equitable
assignment unless confidentiality is an issue to either the existing or new lender. Subparticipation is an agreement between the existing and new lender which does not affect the
relationship between the borrower and the existing lender. It is not necessary to notify the
borrower of a sub-participation, unless the terms of the loan agreement require otherwise.
Option D is therefore also correct.
Question 4
A lends money to B at a fixed rate of interest. The loan agreement is silent about transfers of
rights or obligations. Which one or more of the following statements is/are correcct?
B can assign to C the obligation to repay A, without A's consent.
A can assign to C the right to be repaid, without B's consent.
A can assign to Y the right to receive interest, without B's consent.
Either party can assign its rights and obligations without the consent of the other party.
Feedback
Well done. Answers B and C are correct. Obligations under a contract cannot be assigned.
However, rights under a contract can be assigned without the other party's consent provided
that the obligation on that other party is not increased as a result (see Tolhurst v Associated
Portland Cement manufacturers (1900) Ltd [1902] 2 KB 660).
Question 5
The key difference between a "funded" and a "risk" participation is that under a risk
participation the new bank is not obliged to advance any funds unless and until the borrower
is in default under its facility with the existing bank. True or False?
T
True
F
False
Feedback
That is correct. The statement is true. A risk participation acts like a guarantee of the
borrower's liabilities to the existing bank. As the existing bank takes a credit risk on the new
bank as "guarantor", this method of loan sale does not absolutely remove the risk to the
existing bank of a borrower default
CONSOL
 Question 1
 Scrimpers Plc ("Scrimpers") has decided to issue commercial paper. Which one of the
following statements is correct?
 Scrimpers must withhold tax on any interest payable on the commercial paper.
 Scrimpers need not withhold tax on any interest payable on the commercial paper because it
can rely on the quoted Eurobond exemption.





















Scrimpers need not withhold tax on any interest payable on the commercial paper because
the duty to withhold does not arise on short interest.
Whether or not Scrimpers need withhold tax on any interest payable on the commercial
paper will depend upon the tax jurisdiction in which the recipient is situated.
Feedback
That's right. Answer C is correct. As commercial paper must be repaid within a year, any
interest on it will constitute short interest. There is no requirement to withhold tax on short
interest, and so answers A and D must be incorrect.
Commercial paper is not usually listed on a recognised stock exchange and so it does not
fall within the definition of a quoted Eurobond, so answer B is incorrect. However, this does
not matter given that the duty to withhold does not arise in the first place.
Commercial paper is often issued at a discount to face value rather than being interest
bearing in which case the whole issue of withholding does not arise.
Question 2
Which one or more of the following statements on withholding tax is incorrect?
There is generally no obligation to withhold tax on interest payments from UK borrowers to
UK tax resident banks
It is standard market practice to prohibit a borrower from making any UK income tax
deductions from interest payments
It is standard market practice to require a borrower to ‘gross-up’ any deduction it has made
for withholding tax, unless an exemption specifically applies
All lenders will be entitled to receive a gross-up payment should withholding tax be withheld
from a payment of interest due to them
Feedback
Sorry, the correct answers are B and D. It is a legal obligation under the Income Tax Act
2007 for a borrower to withhold tax on interest payments, unless an exemption applies. It is
therefore standard market practice for a loan facility agreement to contain a provision: (a)
prohibiting a borrower from making any withholdings or deductions unless such withholding
or deduction is required by law, and (b) requiring the borrower to "gross-up" any withholding
that it is required to deduct so that the affected lender receives the amount it would have
received had there been no withholding. Borrowers reduce the risk of having to gross-up
interest payments by requiring the syndicate to be comprised of lenders who are entitled to a
full exemption from withholding tax ("qualifying lenders"). The borrower then accepts the risk
of changes in law that impose a withholding tax on qualifying lenders where there was
previously no obligation. Non-qualifying lenders are therefore not entitled to receive a grossup payment (unless the lender was previously a qualifying lender and has lost its status due
to no fault of that lender e.g. due to a change in law).
Question 3
Omega Bank plc ('Omega') equitably assigns part of its interest in a facility agreement (the
‘Facility Agreement’) to Epsilon Bank plc ('Epsilon'). The borrower receives notification of the
assigned debt. Which one or more of the following statements about this assignment is
correct?
Omega will need to join with Epsilon in any action taken against the borrower in respect of
the debt assigned to Epsilon
The borrower will be obliged to pay any monies due in respect of the assigned debt to
Epsilon
The borrower can discharge its payment obligations in respect of the assigned debt by
paying Omega
Any rights of set-off or counterclaim that the borrower acquired against Omega in respect of
the assigned debt prior to notification of the assignment can be exercised against Epsilon
Feedback










I'm sorry, the correct options are A, B and D. Option A is correct as an assignor bank
(Omega) must join an assignee bank (Epsilon) on any action in connection with the debt
(Three Rivers DC v Bank of England [1995] 4 All ER 312]). Notice of the assignment has
been given to the borrower, so it must pay Epsilon, not Omega going forward. This means
that Option B is correct, and Option C incorrect. Rights of set-off and counterclaim are
examples of ‘equities’. Any equities acquired by the borrower against Omega prior to the
borrower receiving notice of the assignment will survive the assignment, so Option D is also
correct.
The assignment remains equitable notwithstanding the notice served on the borrower
because it was an assignment of part only and therefore the requirements for a legal
assignment in s.136 Law of Property Act 1925 were not satisfied.
Question 4
Bank A has agreed to transfer all its rights and obligations under a bilateral loan to Bank B by
means of novation. Which one of the following statements about the effects of novation is
correct?
If the loan is secured and another creditor of the borrower has taken security since the
original loan was made, Bank B will rank behind that other creditor to the extent that both
secured creditors have security over the same assets.
If the loan is secured, the security will remain in place and automatically become security for
Bank B.
The borrower can set-off any defence or counterclaim which it has against Bank A against
any repayment to Bank B.
If Bank A subsequently ceases to be authorised by the PRA and regulated by the FCA, then
Bank B will become responsible for Bank A's liabilities.
Feedback
No, statement A is correct. On a bilateral loan, there is a risk that re-dating the security to the
date of novation could give priority to a creditor which has taken and correctly registered
security since the date Bank A's security was originally taken. This problem is usually
avoided in syndicated loans because the security is usually given in favour of a security
trustee which holds the security on trust for whichever banks are in the syndicate at the
time.
Statement B is incorrect as novation creates an entirely new contract so, if the loan is
secured, the security is discharged and will have to be renewed each time there is a novation
(although note the points about security trustees made above).
Statement C is incorrect as there is a new direct contractual relationship between Bank B
and the borrower - the original contract between Bank A and the borrower will have been
discharged.
Statement D is factually incorrect. In any event there is no reason why Bank B should be
responsible for Bank A's liabilities.




Question 5
In which one or more of the following situations will there be a change to the borrower's dayto-day banking relationship?
I. Bank A novates its interest in a bilateral facility to Bank B.
II. Bank A novates its interest in a syndicated facility to Bank B.
III. Bank A sub-participates its interest in a bilateral facility to Bank B.
IV. Bank A sub-participates its interest in a syndicated facility to Bank B.
I and II.





I and III.
I only.
III and IV.
Feedback
No, the correct answer is C. If a bank making a bilateral loan novates to another bank, then
the day-to-day relationship will change as the borrower will cease to deal with the original
bank and instead will deal directly with the new bank.
If a bank in a syndicated facility novates its interest to a new bank this will not affect the
borrower, even though it will be aware of the change, as it will continue to deal with the
agent.
In all sub-participations the borrower will continue to deal with the original bank (or agent, as
the case may be). It may not even know that there is a sub-participation in place.