Burr Alert: CFTC Issues New Guidelines Concerning Eligibility Of Swap Guarantors


In secured lending transactions, lenders frequently allow, and even require, borrowers to enter into swap agreements and other financial derivatives to hedge against different business risks, including fluctuations in interest rates, currency rates, and commodity prices. Performance by the borrower under such swap agreements generally constitutes a guaranteed obligation of the borrower under the loan documentation.

Until recently, there were no regulatory limitations as to who could guarantee a swap obligation. However, with the implementation of The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the U.S. Commodity Futures Trading Commission (the “CFTC”) has promulgated regulations governing swap obligations. Namely, beginning March 31, 2013, in addition to the borrowers to a swap, any guarantor of a swap obligation must be an “eligible contract participant” (“ECP”). As discussed in more detail below, a guarantor must generally have more than $10 million in assets to qualify as an ECP. This ruling has far-reaching consequences to a lender, because non-compliance with this requirement may result in the illegality and unenforceability of the entire guaranty by the non-ECP guarantor.

Please see full Alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Burr & Forman | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.