Term and revolving loans are generally treated differently in terms of transferability. With term loans, once they are fully drawn down, borrowers are not at risk of the lenders’ refusal or inability to advance further funds. However, with revolving facilities, borrowers are at risk of lender refusal or inability to advance further funds until the end of the availability period.
Where relationship banks are usually the original lenders at the signing, loan sales can have borrows confronted with a different group of lenders. It can be a major disadvantage for the borrower to have to deal with a large number of potentially uncooperative new lenders when the borrower seeks an amendment, waiver, a rescheduling of the loan agreement or other negotiations.
The agent, the seller (transferor) and the buyer (transferee) are the only parties usually required for execution of the loan transfer. Generally, all other parties are deemed to consent to the transaction and borrower consent may not be unreasonably withheld or delayed.
For stronger borrowers in both Europe and the United States, the lenders must usually obtain the consent of the borrower prior to any transfer or assignment to a lender that is not an existing lender (or affiliate).
To limit risk of loan sales, the borrower may ask for a minimum transfer amount and/or limit the total number of lenders. If the company wants to keep a relationship with its lender, a bilateral is more likely than a syndicated loan and a loan provision would restrict the lender’s right to assign or transfer the loan. However, an absolute transfer restriction will require the borrower to pay additional fees in order to persuade lenders to participate in the syndicate.