In terms of being an entity that represents more than one creditor, there is a
significant distinction between the roles
an institution plays in a syndicated facility when it is both a lender and an agent.
In its capacity as an agent, an institution
does not hold any debt. The debt is held
by that institution in its capacity as a
lender. Therefore, CFA asserts that proposed Rule 2019 should not suggest that
the agent should disclose its position.
Without further clarification,
proposed Rule 2019 could be read to
require the agent to disclose its individual position. To only disclose a single
institution’s position because it also
happens to be the agent does not seem
consistent with the objectives of the
proposed Rule. There does not seem to
be a basis for singling out the agent for
such disclosure as contrasted with other
members of the lending syndicate. At
the same time, to describe the position
of just the institution that is the agent
might be misleading and confusing to
other parties in interest.
To the extent that the institution
acting as agent in a given credit facility
is also a lender in that facility, as is commonly the case, it would be subject to the
same requirements of disclosure under
proposed Rule 2019 (to the extent the
Rule is otherwise applicable). Based on
the foregoing, it is the position of the CFA
that to require public disclosure of the
holdings of every lender in a syndicated
credit facility simply because it is an
agented facility is not required by the
rationale behind proposed Rule 2019.
Given that the agent does not actually
“represent” the lenders for disclosure
purposes proposed Rule 2019 should be
clarified to eliminate this ambiguity.
To avoid potential misinterpretation
of the scope of the revised Rule 2019, CFA
recommended to the AOUSC that the first
sentence of clause (b) of the proposed
Rule 2019 be modified to expressly
exclude agents acting in such capacity
Claims, provides perspectives on the
preparedness levels of financial institutions
in responding to claims by debtors, creditor
committees and/or trustees who seek to
recover money allegedly paid improperly to
creditors. The study shows a rising tide of
such claims, known as “fraudulent transfer”
or “fraudulent conveyance” cases. More
than half of respondents saw an increase in
fraudulent transfer cases in the past year,
while only two percent saw a decrease.
In the wake of the increase in fraudulent transfer claims, the study found that
many financial institutions are taking
steps to manage their risks. The study also
◗;Sixty percent of respondents say loan
restructuring decisions are made either
by the Board of Directors, C-suite executives, or senior management.
Fraudulent Transfer Claims
on the Rise
◗;More than 80 of respondents said
employers or clients have been either
somewhat or very active in improving internal processes to minimize
fraudulent-transfer risks since the start
of the recession.
While signals about the pace of economic
recovery continue to be mixed, a new
study released by Navigant Consulting,
Inc., and the Economist Intelligence Unit
◗;More than 50 of internal and external
legal counsel surveyed were optimistic
about financial service firms’ preparedness with fraudulent transfers.
(EIU) shows a dramatic uptick in the number of fraudulent transfer claims filed as a
result of last year’s financial crisis.
The study, Risky Business: Financial
◗;Twenty-six percent of respondents say
financial firms will adopt new rules to
seek expert counsel on solvency of applicants for loans.
Firms Face Wave of Fraudulent Transfer
“We have definitely seen an increase
in fraudulent transfer cases in the last
year,” said Stan Murphy, managing director at Navigant. “The risks for lending
institutions can be very high and costly as
more and more companies fail due to the
economic downturn and creditors jostle
In every issue of The Secured Lender, the approximately 250 CFA directors are
asked to provide their opinion on a current question related to commercial finance.
For the April issue, the TSL Question was posed only to those CFA directors whose
companies’ are not bank-affiliated. The question for April 2010 is:
What has your organization’s experience been in funding its
operations over the last 18-24 months?
as part of a syndicated credit facility, in
a manner consistent with the position of
certain of the other organizations that
have provided comments.
The AOUSC will now consider the
comments submitted by CFA and other
interested parties before issuing a final
rule, which will be reviewed by the
United States Supreme Court before it
goes into effect. This process could take
up to 12 months.
CFA’s comment letter was drafted
by the Association’s co-general counsel
Richard Kohn of Goldberg Kohn and
Jonathan Helfat of Otterbourg, Steindler,
Houston & Rosen.
Financing terminated by bank lender…………………………………….………. 7.8%
Financing reduced by bank lender…………………………………….………….13.7%
Financing increased by bank lender…………………………………….………... 17.6%
Financing unchanged by bank lender……………………………………………. 43.1%
primary funding provided by non-bank source…………………………………. 17.6%
the secured lender april 2010 13