Originally published in BankNews - October 2012.

Throughout the years, I have had the privilege of working with many clients who were either a lead bank or a participant in a participated loan. Invariably, the work involved a troubled loan. Unfortunately, in many cases, there was friction between the lead bank and its participants over any number of issues. Too often, the lead bank and participants were not fully aware of the various terms and provisions of their loan participation agreements, which can vary widely from loan to loan.

When and Why to Participate -

There are several good reasons to participate a loan. The most common is that the lead bank or participant is presented with a lending opportunity that exceeds its legal lending limits. Finding a good participant partner makes sense. Another good reason, but perhaps more rare, is when a bank is presented with a lending opportunity that is outside of its scope of expertise or knowledge of the borrower’s industry. In that case, a bank may bring in a lead lender with the capability to manage the credit and monitor the borrower’s performance. Yet another good reason may be a common relationship between a group of lenders and a specifi c borrower, all of whom have had experience working together on various loans.

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