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LUND UNIVERSITY LIBRARIES

Syndicated loans - The legal risks arising from the information memorandum

Persson, Josefin LU (2010) JURM01 20101
Department of Law
Abstract
An international syndicated loan consists of a collection of two or more separate loans made by individual banks to one borrower, which are governed by a single agreement and subject to the same terms and conditions. The arrangement, which may involve everything from just a few to hundreds of banks and enormous amounts of money, offers many advantages for borrowers since it may allow for a more flexible, easy, less expensive and less time-consuming method of raising funds. Furthermore, the syndications market provides opportunities for lenders to diversify their portfolios and to avoid the infringement of regulations on capital adequacy.
A typical syndication process is initiated by the borrower who mandates a lead bank to arrange the... (More)
An international syndicated loan consists of a collection of two or more separate loans made by individual banks to one borrower, which are governed by a single agreement and subject to the same terms and conditions. The arrangement, which may involve everything from just a few to hundreds of banks and enormous amounts of money, offers many advantages for borrowers since it may allow for a more flexible, easy, less expensive and less time-consuming method of raising funds. Furthermore, the syndications market provides opportunities for lenders to diversify their portfolios and to avoid the infringement of regulations on capital adequacy.
A typical syndication process is initiated by the borrower who mandates a lead bank to arrange the transaction. To advertise the arrangement and to make other banks participate, the lead bank will, in conjunction with the borrower, prepare and distribute an information memorandum containing details about the borrower and the transaction. Hence, the memorandum is a marketing document of great importance and if the information provided therein later proves to be false, misleading or inaccurate and the lenders consequently suffers a loss, the question of who can be held liable for its contents may arise. Three main actors can be identified as the ones potentially liable for the lenders’ shortfall: the borrower, professional advisers and the lead bank. However, normally such inadequacy will not come to light until the loan already has gone bad. In such case, the participating banks may be tempted to sue the lead bank as the only pocket left to pay.
Under English law, liability for the lead bank regarding inaccuracies in the information memorandum may be based on common law or statutory law. There are three potential heads of liability under common law of tort: fraudulent misrepresentation, negligent misrepresentation and fiduciary obligations. Under statutory law, the Misrepresentation Act may impose liability. Under Swedish law, the rules laid down under the Tort Liability Act will be decisive.
In order to mitigate the lead bank’s risk of being held liable for inaccuracies in the information memorandum, disclaimer notices and exclusion clauses are included in the memorandum and the loan agreement. Such clauses ought to protect the lead bank as long as they are considered reasonable under the English Unfair Contract Terms Act or the Swedish general clause, section 36 in the Contract Act.
As is accounted for in this thesis, if the borrower fails to repay the loan and it can be shown that the lead bank has performed its task negligently, a potential threat of claims for damages exists under both English and Swedish law. However, the actors in the market of syndications almost exclusively consist of sophisticated commercial parties, dealing with each
other at arm’s length. Therefore, as long as no special circumstances indicate differently, disclaimers and exclusion clauses aiming at deducting liability in negligence will be effective. (Less)
Abstract (Swedish)
I ett internationellt syndikerat låneförfarande går en grupp banker, under ledning av en så kallad arrangörsbank, ihop för att tillsammans finansiera en låntagares kapitalbehov. Det karaktäristiska för arrangemanget, som kan involvera allt från två till flera hundra långivare och enorma summor pengar, är att samtliga deltagande långivare ingår individuella låneavtal med låntagaren vilka samlas under en enda låneöverenskommelse. Långivarna förbinder sig därmed att under samma villkor låna ut en del av den totala summan. Finansieringsformen erbjuder stora fördelar för låntagare då den kan utgöra en flexibel, enkel, mer prisvärd och tidseffektiv metod för att lyfta stora volymer kapital. Dessutom ger den syndikerade lånemarknaden långivare en... (More)
I ett internationellt syndikerat låneförfarande går en grupp banker, under ledning av en så kallad arrangörsbank, ihop för att tillsammans finansiera en låntagares kapitalbehov. Det karaktäristiska för arrangemanget, som kan involvera allt från två till flera hundra långivare och enorma summor pengar, är att samtliga deltagande långivare ingår individuella låneavtal med låntagaren vilka samlas under en enda låneöverenskommelse. Långivarna förbinder sig därmed att under samma villkor låna ut en del av den totala summan. Finansieringsformen erbjuder stora fördelar för låntagare då den kan utgöra en flexibel, enkel, mer prisvärd och tidseffektiv metod för att lyfta stora volymer kapital. Dessutom ger den syndikerade lånemarknaden långivare en möjlighet till att sprida sin risk, minska sin kreditexponering samt leva upp till de kapitaltäckningskrav som ställs.
En typisk syndikeringsprocess inleds med att låntagaren ger en arrangörsbank i uppdrag att arrangera syndikeringen. För att göra reklam för transaktionen och försöka få andra kreditgivare att delta, färdigställer arrangörsbanken tillsammans med låntagaren ett informationsmemorandum med detaljerad information om låntagaren och transaktionen i fråga. Memorandumet utgör ett viktigt marknadsföringsdokument och i det fall informationen som dokumentet presenterar senare visar sig vara falsk, vilseledande eller otillräcklig och långivarna därav lider en skada, kan ansvarsfrågor uppkomma. Tre huvudsakliga aktörer kan identifieras som potentiellt ansvariga för långivarnas åsamkade skada: låntagaren, professionella rådgivare samt arrangörsbanken. Eftersom en eventuell felaktighet i dokumentet vanligtvis inte uppmärksammas förrän låntagarens återbetalningar uteblir, kan långivarna komma att väcka åtal mot arrangörsbanken eftersom den kan anses utgöra den mest likvida aktören.
I engelsk rätt kan arrangörsbanken hållas ansvarig både enligt common law och enligt lagstadgad rätt (Eng: statutory law). Common law of tort konstituerar tre möjliga ansvarsgrunder: bedräglig framställning av information (Eng: fraudulent misrepresentation), försumlig framställning av information (Eng: negligent misrepresentation) och fiduciary förpliktelser. Vad gäller den lagstadgade rätten så kan Misrepresentation Act ålägga ansvar. I svensk rätt kommer reglerna enligt Skadeståndslagen vara avgörande.
I syfte att minska arrangörsbankens risk för att hållas ansvarig för felaktig information presenterad i informationsmemorandumet inkluderas friskrivningar i både memorandumet och låneavtalet. Sådana klausuler kan skydda arrangörsbanken så länge de är att betrakta såsom rimliga enligt det engelska Unfair Contract Terms Act och den svenska generalklausulen, 36 § Avtalslagen.
3
Som framgår av uppsatsen så finns det, i både engelsk och svensk rätt, ett potentiellt hot om skadeståndskrav mot arrangörsbanken för det fall låntagaren misslyckas återbetala lånet och det kan visas att den arrangerande banken förfarit förumligt vid utförandet av sina uppgifter. Emellertid anses deltagarna på den syndikerade lånemarknaden vara sofistikerade kommersiella aktörer som gör affärer med varandra på armslängds avstånd. Därmed, bortsett från att inga speciella omständigheter indikerar motsatsen, torde friskrivningsklausuler vara verkningsfulla. (Less)
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author
Persson, Josefin LU
supervisor
organization
course
JURM01 20101
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Bankrätt
language
Swedish
id
1600179
date added to LUP
2010-05-07 14:55:59
date last changed
2010-06-04 10:21:37
@misc{1600179,
  abstract     = {{An international syndicated loan consists of a collection of two or more separate loans made by individual banks to one borrower, which are governed by a single agreement and subject to the same terms and conditions. The arrangement, which may involve everything from just a few to hundreds of banks and enormous amounts of money, offers many advantages for borrowers since it may allow for a more flexible, easy, less expensive and less time-consuming method of raising funds. Furthermore, the syndications market provides opportunities for lenders to diversify their portfolios and to avoid the infringement of regulations on capital adequacy.
A typical syndication process is initiated by the borrower who mandates a lead bank to arrange the transaction. To advertise the arrangement and to make other banks participate, the lead bank will, in conjunction with the borrower, prepare and distribute an information memorandum containing details about the borrower and the transaction. Hence, the memorandum is a marketing document of great importance and if the information provided therein later proves to be false, misleading or inaccurate and the lenders consequently suffers a loss, the question of who can be held liable for its contents may arise. Three main actors can be identified as the ones potentially liable for the lenders’ shortfall: the borrower, professional advisers and the lead bank. However, normally such inadequacy will not come to light until the loan already has gone bad. In such case, the participating banks may be tempted to sue the lead bank as the only pocket left to pay.
Under English law, liability for the lead bank regarding inaccuracies in the information memorandum may be based on common law or statutory law. There are three potential heads of liability under common law of tort: fraudulent misrepresentation, negligent misrepresentation and fiduciary obligations. Under statutory law, the Misrepresentation Act may impose liability. Under Swedish law, the rules laid down under the Tort Liability Act will be decisive.
In order to mitigate the lead bank’s risk of being held liable for inaccuracies in the information memorandum, disclaimer notices and exclusion clauses are included in the memorandum and the loan agreement. Such clauses ought to protect the lead bank as long as they are considered reasonable under the English Unfair Contract Terms Act or the Swedish general clause, section 36 in the Contract Act.
As is accounted for in this thesis, if the borrower fails to repay the loan and it can be shown that the lead bank has performed its task negligently, a potential threat of claims for damages exists under both English and Swedish law. However, the actors in the market of syndications almost exclusively consist of sophisticated commercial parties, dealing with each
other at arm’s length. Therefore, as long as no special circumstances indicate differently, disclaimers and exclusion clauses aiming at deducting liability in negligence will be effective.}},
  author       = {{Persson, Josefin}},
  language     = {{swe}},
  note         = {{Student Paper}},
  title        = {{Syndicated loans - The legal risks arising from the information memorandum}},
  year         = {{2010}},
}