Przeskocz do treści

Interest Rate Swap Risk Participation Agreement

It seems that there was already a debate on this subject in 2011 - what is remarkable is this comment that an industry group sent to the CFTC and the SEC on this subject. I vaguely remember the debate they refer to - on the definition of a swap, a stock-based swap, a mixed swap, etc. Now imagine that this loan is linked to an interest rate swap, that is, between the borrower and the agent bank. Continue to consider that the line of credit between the borrower and the agent bank is not sufficient to cover the entire swap. What seems to be happening here is that The Agent Bank will take the swap with the borrower and assume the full market risk (rate risk) of the transaction. However, the agent bank needs the help of union banks (I think the same thing) to cover the solvency of the swap. Thus, the agent asks each union (I think to cover the same part) of the loan as provided in the loan. So if I have that right, if the borrower is late in the swap, syndicated loans can give rise to risk-participation agreements if lenders take certain steps. When a borrower is looking to finance a syndicated loan, it could be offered through a bank of agents working with a consortium of other lenders.

It is likely that participating banks will contribute amounts equal to the total amount and pay fees to the agent bank. Under the terms of the loan, it may belong to an interest rate swap between the borrower and the agent bank. Unionized banks may be invited, in a risk-participation agreement, to assume the solvency risk of this swap. These conditions depend on the borrower`s default. In addition, the association stated that the agreements were used as banking products to better manage risk. Preventing them from being regulated as swaps also corresponded to the flexibility left by banks to make credit-related swaps. But that doesn`t mean I didn`t try to find them in the SDR data available on SDRView. If you read my blogs, you will know that I have an open question as to why some single name credit swaps never appear in the CFTC SDR. But it never hurts to try.

Industry groups have tried to ensure that risk-participation agreements are not treated as swaps by the SEC. With SDRView, for the month of June 2016, I can only see 3 unique credit exchange transactions against North American companies, all 10 years and more of protection against companies.

Opublikowano Kategorie Bez kategorii