An “assignment” under New York law is the legal term used to refer to the transfer of rights, such as the right to receive payments on a loan, while “delegation” is the legal term used to refer to the transfer of obligations, such as the obligation to make loans. However, “assignment” as commonly used in the US refers to the transfer of both rights and obligations of the assignor/seller under a credit agreement, such that the assignee/buyer comes into privity of contract with the borrower.
| Types of True Loan Sales | ||
| Transfer of | ||
| Rights | Obligations | |
| Assignment | ✓ | – |
| Novation | ✓ | ✓ |
An “assignment” as used under English law is the transfer from a lender to another party of the rights to interest and principal – not any obligations – for amounts already drawn down and owing to the lender. Only the benefit of an agreement may be assigned, with any commitment to provide funds to the borrower remaining with the existing lender. The transferee (buyer) assumes the rights of the transferor (seller) and enters into a direct relationship with the parties to the loan agreement – the borrower, the agent and the other lenders.
Where a US participation transfers the beneficial and economic ownership of a loan, under English law the loan remains with the originating lender and an unsecured debtor-creditor relationship is created between the participants and the grantor. Therefore, a US participation is effectively a true sale, where an LMA-style participation if refinancing for the loan originator and grantor. However, both US and UK participations create a new contract between the original lender and the loan buyer, while leaving the contract between the borrower and the original lender unchanged.