Debt is commonly traded between lenders. Domestic loan transfers are commonly documented using standard form agreements made available by the Japan Syndicate and Loan-Trade Association which consist of a master agreement for all transactions between the parties and an individual agreement for a specific transaction between the parties. In the case of discrepancy between the two documents, the tailored individual agreement will prevail for the specific transaction. For more complex transactions, a more bespoke form of sale and purchase agreement is typically used. The ability of lenders to transfer debt to other lenders is a matter for negotiation on a transaction by transaction basis.
In addition, there are several ways of transferring debt:
- Assignment of rights: Subject to contractual restrictions, the assignment of rights can be completed without the consent of the debtor. Partial assignments are also possible. Perfection can be accomplished through notice to or acknowledgement by the debtor on an instrument bearing a certified date or through registration in the case of a corporate seller.
- Assignment of contractual status: Subject to the consent of the debtor, a total or partial assignment of a lender's contractual status, including any or all rights and obligations, is possible. A transfer of a revolving loan includes a transfer of the lender's obligation to lend money to the debtor and therefore cannot be accomplished only through the assignment of rights.
- Novation: A novation results in the formation of a new contract between the continuing party and the transferee, while the transferor is released from all its obligations.
- Sub-participation: Sub-participation is a transfer of the economic interest in a loan without changing the legal relationship between the existing parties. Sub-participations involve the purchaser taking on double credit risk, being that of the seller and of the borrower. Some participation agreements have a triggering event (such as poor financial performance by the original lender) which requires a change to the sub-participation arrangements to effectively transfer the loan to avoid the new lender assuming the original lender's risk.
- Synthetic arrangements: the economic risks of debt can also be traded using derivatives and insurance policies.
