REALWorld Law

Real estate finance

Trading of debt

Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?

Angola

Angola

It is not common for secured debt to be traded between lenders in the Angolan market.

Australia

Australia

Secured debt is often traded between lenders. The transfer of debt can be effected by agreement and by registering an approved transfer form with the registry in which the associated security is registered. Stamp duty may be imposed on a transfer of security.  The Personal Property Securities Act 2009 (PPSA) deals with the transfers of debts and may require registration of a PPS security interest over the transferor of the debt in order to avoid creditors of the transferor seeking to make a claim against the transferee in relation to the debt.

Belgium

Belgium

In Belgium debt can be traded between lenders. The loan and other finance documentation will usually provide for specific procedures to effect such transfers (either through syndication or subsequent transfers).

One has to make a distinction, however, between the transfer of a debt and the transfer of a claim, which are two distinct operations. The former is exercisable by and available to the borrower/mortgagor only with the consent of the lender and the latter is exercisable by the lender at its own discretion and will be enforceable against the borrower following notification or acknowledgement of the transfer (unless the relevant agreements provide for conditions such as prior approval). An act has made assignments of ‘bank claims’ easier and has confirmed certain principles in respect of the assignment of secured claims. These principles should be taken into account given that this act appears to have unintended consequences in certain circumstances.

Whenever the claim is assigned to a third party by the mortgagee, the mortgage as security for the loan will follow. In order to be enforceable against third parties, the transfer must be notified to the mortgage office (inscription en marge/kantmelding).

In relation to mortgages, Belgian law does not recognize the concept of security agent, and as such a parallel debt structure must be set up in order to organize a valid transfer of mortgage to new lenders.

Bosnia-Herzegovina

Bosnia-Herzegovina

This is not usual. Any transfer is effected by means of an assignment or loan purchase agreement.

Canada

Canada

Secured debt is often traded between lenders. The transfer of debt can be effected by assignment and by registering an approved transfer or assignment form with the registry in which the associated security is registered.

China

China

Secured debt may be assigned between lenders. The assignment instrument must be registered and notice must be given to the debtor.

Croatia

Croatia

A lender's rights in relation to secured debt may be readily transferred. The key issue is the ability of the party to which the debt is transferred to enforce its rights pursuant to the instrument creating the security.

It is generally advisable that the transfer is made by way of a notarised statement of assignment, either of the lender's rights under the loan agreement or of the entire contractual agreement. The approval of the borrower will be required for the assignment of the entire contractual agreement.

If there is an uninterrupted chain of transfers by way of notarised statements of assignment, a party will be able to enforce the security even though it was not a party to the original security document.

Czech Republic

Czech Republic

Generally, a creditor may assign its receivables to third parties, preferably by written agreement and the consent of the debtor is not required. The assignment will also include 'accessories' (ie the right to receive interest, delay penalties, delay fees and costs relating to pursuing the receivable) as well as other rights connected to the receivable. If the assignment conflicts with the agreement concluded with the debtor, the receivable cannot be assigned.

The assignor must notify the debtor of the assignment without undue delay. Until the debtor is notified of the assignment or until the assignee proves the assignment to the debtor, the debtor can discharge its obligation by paying the assignor. If performance of the assigned receivable is secured by a pledge, guarantee, or in any other way, the assignor must notify the person who granted it, otherwise the assignment has no legal effect towards the grantor.

By the perfection of the assignment, the assignee acquires the legal status of the assignor (in place of the original lender). The legal status of the debtor is not changed by the assignment.

Denmark

Denmark

If the debt is traded between lenders, the transfer of the debt must be perfected by  notification to the debtor. If the loan is secured by a mortgage the change of mortgagee must be registered at the Land Registry.

France

France

Debt may be traded between lenders.

There are several ways of transferring debt:

  • By way of novation, although this is not the preferred route under French Law as it may jeopardize the benefit of the new lender in the security interests (the latter falling away unless prior reservation of benefit has been provided for).
  • By way of assignment, the receivables under the loan being assigned to the transferee under an assignment agreement (or sometimes by way of endorsement).
  • By way of transfer of contract, the rights and obligations under the loan being assigned to the transferee under a transfer of contract agreement.
  • By way of sub-participation, where a third party agrees to fund a lender without the original loan contract between the original lender and the borrower being affected. The original lender remains the lender of record.

Sub-participations are sometimes disclosed to the borrower without this creating a relationship between the borrower and the sub-participant. The sub-participant is entitled to receive the interest amount (and the principal paid by the borrower).

  • Synthetic arrangements: economic risks can also be traded using derivatives and insurance policies.
Germany

Germany

Secured debt is commonly traded between lenders. Syndicated lending documentation is becoming standardized on the terms of the standard documents governed by German Law issued by the Loan Market Association and this allows free transferability of debt between lenders with the security being held on their behalf by a security agent.

In addition, there are several ways of transferring secured debt directly to a new creditor being:

  • Assignment; where the loan is assigned to the transferee although this cannot be used to transfer an undrawn commitment (which would have to be dealt with a transfer and assignment by way of assumption of the contract (Vertragsübernahme))
  • Transfer and assignment by way of assumption of the contract (Vertragsübernahme); where the whole of the loan and the lender's obligations are transferred to the transferee
  • Sub-participation; where the economic benefit of the loan is transferred to the transferee but the original loan contract between the original lender and the borrower is not affected. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but on the original lender
  • Synthetic arrangements; where economic risks are traded using derivatives and insurance policies

Assignment and transfer and assignment by way of assumption of the contract (Vertragsübernahme) of debt secured over real estate requires registration in the land register thus in those cases formal requirements must be complied with.

For German mortgage-backed securities transactions the time-consuming process of registering the assignments can be avoided by using what is known as the refinancing register which is provided for under the German Banking Act (Kreditwesengesetz).

Hong Kong, SAR

Hong Kong, SAR

Debt is commonly traded between lenders. Syndicated lending documentation is becoming standardized on the terms of the Asia Pacific Loan Market Association and this allows for free transferability of debt between lenders with the security being held on their behalf by a security trustee and the debt being administered by an agent.

In addition, there are several ways of transferring debt being:

  • Novation; the whole of the loan and the lender's obligations are transferred to the transferee
  • Assignment; the loan is assigned to the transferee but this cannot be used to transfer an undrawn commitment (which would have to be dealt with by way of novation)
  • Sub-participation; the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender
  • Synthetic arrangements; economic risks can also be traded using derivatives and insurance policies.
Hungary

Hungary

Claims and receivables are normally transferred under Hungarian law by assignment. The Civil Code regulates also the transfer of a contractual position (including all rights and obligations of the transferor arising from the contract). Receivables can be assigned also under factoring transactions. As a result of the assignment or transfer of the lender's contractual position, also accessory mortgages and pledges securing the transferred claim transfer to the assignee, but its registration with the Land Registry, Company Registry or the Credit Collateral Registry (HBNY) (depending on the type of the security) is also advisable. Call options, independent-type mortgages and independent guarantees do not travel with the transferred claim automatically. The Civil Code also introduced a form of security trust, such security trustee shall continue hold the mortgage or pledge on trust for the benefit of the assignee as secured creditor also following the assignment of the secured receivables.

Furthermore, section 17/A of Act CCXXX of 2013 introduced a special regime enabling financial institutions to transfer a portfolio of contracts or a portfolio of claims to another financial institution, subject to specific approval by the National Bank of Hungary.

Ireland

Ireland

Debt is commonly traded between lenders. In Ireland, syndicated lending transactions are commonly carried out using the standardized syndicated loan documentation prepared by the Loan Market Association (LMA), adapted for Irish law purposes. The LMA documentation comprises procedures around the transfer of debt between lenders. LMA-style documentation is also well used in Irish lending transactions for bilateral loans. In addition, lender-specific facility letters (with general terms and conditions attached) and facility agreements are also often used, particularly for smaller bilateral loans. The terms of most loans made in Ireland allow for the lender to freely assign the debt without the consent of the borrower.

There are several ways of transferring debt:

  •  Novation – this involves the transfer of all of the lender's rights, benefits and obligations to the transferee (which would eg include the lender’s obligation to make further advances)
  • Assignment – this involves the transfer of all of the lender’s rights and benefits to the transferee (but not eg the lender’s obligation to make further advances – this would have to be dealt with by way of novation)
  • Subparticipation – where the economic benefit of the loan is transferred to the transferee without affecting the original loan contract between the original lender and the borrower: the original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender
  • Synthetic arrangements – where economic risks are traded using derivatives and insurance policies

It should be noted that where debt is assigned stamp duty may apply. Usually where one lender is assigning debt to another lender (whose business activities include the buying or selling of loans) there is an exemption from stamp duty. The availability of the exemption would need to be examined on a case-by-case basis.

Italy

Italy

Pursuant to section 1260 of the Italian Civil Code, a creditor (ie a lender) can transfer its claim vis-à-vis a debtor (ie a borrower), provided that the claim does not have a strictly personal character or that the transfer is not forbidden by law.

Pursuant to section 1263 of the Italian Civil Code the execution of the transfer agreement will effect a valid transfer of both the portion of loan and of the relative security or guarantees between the parties. However, the transfer of the security or guarantees will not be effective or enforceable against third parties until the transfer formalities for the relevant security are complied with.

Syndication of a loan may have an adverse fiscal impact because it will be necessary, on syndication, to transfer the existing security to all the new lenders and further registration taxes could be payable.

Japan

Japan

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.
Netherlands

Netherlands

A single debt is not commonly traded between lenders. Securitization is however a common concept in the Netherlands.

A debt that is secured by a mortgage right can be assigned to a third party by way of a deed of assignment. The debtor does not need to co-sign the deed of assignment. The debtor must, however, be informed that such a deed of assignment has been signed, and to whom the debtor must make its payments to discharge it from its obligations in order for the assignment to be perfected.

Another way to effect transfer is to transfer all or part of the lender's rights and obligations under the relevant loan agreements to a transferee by way of transfer of contract (contractsoverneming). The debtor needs to (either explicitly or implicitly) provide co-operation thereto. Usually, the relevant loan agreements contain provisions wherein the debtor provides its irrevocable co-operation to such transfer in advance.

If a debt is secured by a bank mortgage, the parties must take into account that the bank mortgage will partly remain with the transferring security holder, unless the transferring security holder:

  • partially cancels its relevant security right immediately after the transfer of the loan(s) to the extent that such security rights secure obligations other than the claim against the debtor(s) in connection with the loan(s) which (is/are) being transferred; or
  • explicitly terminates all legal relationships with the relevant debtor.
Nigeria

Nigeria

Debt trading is subject to the agreement of parties in the facility or loan agreement. Where there are no restrictions in the agreement between parties, all or a portion of the loan debts can be transferred to a third party. Receivables under a credit facility can be transferred to another lender by (i) assignment; (ii) novation; and (iii) sub-participation arrangements.

Norway

Norway

Debt is commonly traded between lenders. Syndicated lending documentation is becoming standardized on the terms of the Loan Market Association and this allows for free transferability of debt between lenders with the security being held on their behalf by a security trustee/agent and the debt being administered by an agent.

In addition, there are several ways of transferring debt:

  • By assignment – the whole of the loan and the lender’s obligations is assigned to the transferee
  • Sub-participation – the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender
  • Synthetic arrangements – economic risks can also be traded using derivatives and insurance policies
Poland

Poland

In general, the secured debt may only by traded jointly with the mortgage. If secured by mortgage, the transfer requires an agreement between the lender (assignor) and assignee containing consent for the assignment and registration at the Act on Land and Mortgage Registers and on Mortgage.

The declaration of will of the lender must be in writing with his signatures notarised, while for the assignor plain written form would suffice. The transfer does not require the debtor’s consent, unless such requirement is stipulated in the agreement between the lender and the debtor (contractual agreement).

Portugal

Portugal

In general, lenders do not trade debt, but lenders do often securitize their secured debt by selling distressed secured debt to securitization companies or funds by assigning credit or novation agreements.

In addition, it is usual for lenders (banks and other credit and financing institutions) to subject the secured debts in their portfolio to a financial pledge granted for the benefit of the central bank or the European Central Bank in order to collateralize their own loans contracted with the interbank market. This financial pledge does not depend on any registration or notification to the debtor and prevails over any other security, even if previously registered or notified.

Romania

Romania

Under Romanian law, the rights under a loan agreement can be transferred by way of assignment while the rights and obligations can be transferred by way of assignment only with the other party’s approval or by way of novation. Securitisation structures are also available under Romanian law.

The main difference between assignment and novation with respect to collateral security is that, in case of an assignment, the relevant collateral security remains effective and is transferred to the new lender automatically, as an effect of the law. Consequently, an assignment of rights under a loan agreement triggers the assignment of rights under the corresponding security agreements. Where there is a transfer of rights and obligations by way of novation, the collateral security for the obligation under the loan agreement that is being novated remains effective and is transferred to the new lender only if the novation agreement should contain a clause expressly stipulating that the relevant collateral security is not discharged and is transferred to the new lender. In addition, the mortgage should be amended to effect the changes resulting from the novation and the amendment should be registered in the relevant registry. A similar approach is also recommended in the case of a transfer by way of assignment.

In order to be enforceable against third parties the assignment of the loan must be registered in the Romanian National Registry for Movable Security Publicity.

In order to be enforceable against the debtor the assignment of the loan must be either be:

  • notified to the debtor; or
  • accepted by the debtor by way of a deed with a certified date.

If the same rights are assigned to more than one party, then the assignee who first registers the transfer with the Romanian National Registry for Movable Security Publicity has priority, regardless of whether the debtor was notified or not.

Slovak Republic

Slovak Republic

Secured debt can be 'traded' between lenders. The Civil Code regulates the institute of 'assignment of a claim', where a creditor may assign his claim against a debtor to another party by means of a written agreement. The assignment includes accessories and all rights connected with the claim. The debtor's consent to the assignment is not required in order for the agreement to become valid, unless the debtor and the creditor agree on any restrictions of assignment in the respective agreement, eg the parties may agree that the receivable cannot be assigned without the consent of the debtor.

The creditor shall notify the debtor of the assignment without delay. Unless the creditor has notified the debtor of the assignment or unless the new creditor proves the assignment to the debtor, the debtor can perform its obligations to the original creditor.

Spain

Spain

Secured debt can be traded and is in fact increasingly traded between lenders. There are several ways of transferring debt, being:

  • Total or partial assignment: the loan and associated guarantees are assigned to the transferee. The assignment should be recorded by means of a public deed and registered at the registries where security is registered (only mortgage rights may be registered in Spain), in order to be binding on third parties. Besides notary fees, if the debt is secured by mortgages, the assignment entails the payment of stamp duty and land registry fees.
  • Total or partial sub-participation or “silent assignment”: the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender on record and the buyer of the debt takes the credit risk not only on the borrower but also on the original lender.
  • Mandatory assignment at the request of the debtor: Spanish law allows financial entities to acquire mortgage-backed loans from other financial entities without the original creditor’s consent at the request of the debtor. In order to do so, the new creditor must submit a binding offer to the debtor with the financial terms of the new mortgage-backed loan. When accepted by the debtor, the new creditor submits the offer to the original lender who has the right to equal the offer and sign a novation deed with the debtor. Both the novation and the subrogation deeds are exempt from Stamp Duty and benefit from reductions in notary and registry fees if the only amendments made to the original deeds are the term and/or the interest applicable to the loan.
Sweden

Sweden

As a general matter, debts secured by real estate assets are not traded between lenders. Most banks keep the loans they make on their own books. Larger deals are of course always susceptible to being syndicated.

The transfer of rights to and interests in secured debt is made by a contractual assignment of such rights and interests. The assignment is perfected through the giving of notice to the borrower and, as the case may be, to the relevant agent and/or security agent.

Thailand

Thailand

Yes, the trading of secured debt can be made by either novation or assignment between lenders or other parties. The transferee will acquire only the right to claim if the transaction has been effected in the form of an assignment. In contrast, the transferee will acquire both liabilities and rights if the transaction has been made in form of novation.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

It is possible for secured debt (or any debt for that matter) to be traded between financiers. This is typically done by way of assignment, novation or sub-participation. However, this should always be considered on a case-by-case basis (with security reviewed) in order to ensure that the debt or the security interest is not inadvertently discharged or otherwise prejudiced.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

It is possible for secured debt (or any debt for that matter) to be traded between financiers. This is typically done by way of assignment, novation or sub-participation. However, this should always be considered on a case-by-case basis (with security reviewed) in order to ensure that the debt or the security interest is not inadvertently discharged or otherwise prejudiced.

UK - England and Wales UK - England and Wales

UK - England and Wales

Debt is commonly traded between lenders. Syndicated lending documentation has, to a large extent, become standardized on the terms incorporated in facility agreements produced by a trade body known as the European Loan Market Association (LMA). These are then negotiated between the parties. In particular, there are two specific English law governed LMA Real Estate Finance standard facility agreement template documents:  an investment loan facility agreement and a development loan facility agreement. Each of these is in general use in syndicated transactions in the real estate market in the UK and allows for free transferability of debt between lenders with the security being held on their behalf by a security agent (acting as trustee for the changing pool of lenders from time to time) and the debt being administered by a facility agent.  Bilateral loan facility agreements and non-LMA documents usually contain equivalent transfer provisions to those in the LMA documents. However, 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 being:

  • novation: the whole of the loan and the lender's obligations are transferred to the transferee;
  • assignment: the loan is assigned to the transferee, but this cannot be used to transfer an undrawn commitment (which would have to be dealt with by way of novation);
  • sub-participation: the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender; and
  • synthetic arrangements: the economic risks of debt can also be traded using derivatives and insurance policies.
UK - Scotland

UK - Scotland

Debt is commonly traded between lenders. Syndicated lending documentation is becoming standardized on the terms of the Loan Market Association and this allows for free transferability of debt between lenders with the security being held on their behalf by a security trustee and the debt being administered by an agent.

In addition, there are several ways of transferring debt being:

  • Novation; the whole of the loan and the lender's obligations are transferred to the transferee
  • Assignation; the loan is assigned to the transferee but this cannot be used to transfer an undrawn commitment (which would have to be dealt with by way of novation)
  • Sub-participation; the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender
  • Synthetic arrangements; economic risks can also be traded using derivatives and insurance policies
Ukraine

Ukraine

Debt secured by mortgage can be assigned to the other lender if not prohibited by a relevant loan or mortgage agreement. The assignment is usually done by way of execution of a relevant assignment agreement to the loan and security agreements.

The transfer of the mortgagee's rights under the mortgage agreement to the other party should be confirmed by a notarized transfer agreement accompanied with state registration. The mortgagor's consent is not required for such transfer (unless the mortgage agreement establishes otherwise) but the mortgagee shall notify the mortgagor on such transfer. It should be noted that the transfer of debt shall be performed simultaneously with the assignment of the principal obligation to the new mortgagee.

Based on the mortgage agreement, the parties may agree to issue a mortgage note (a kind of debt security), which can be dealt with by the lender. Such lender may transfer, dispose or by other means alienate the security (mortgage note) to any third party. The mortgage note transfers to its holder all rights under the mortgage agreement and principal agreement. The mortgagor's consent is not required for such a transfer of security. The transfer of mortgage note should be effected by way of endorsement and state registration is required.

Debt secured by trust ownership can be assigned to a third party upon consent of a trustor unless the trust agreement establishes otherwise. Such trustor's consent shall be in writing and notarised.

The transfer of debt shall be normally documented by an assignment agreement to the loan with simultaneous amendments to the trust instrument, which need to be notarized and registered with the State Register of Property Rights over Immovable Property.

United States

United States

In the United States, debt can be, and frequently is, traded between lenders. A mortgage can be transferred by assignment (which is frequently made of record in the same manner as the mortgage being assigned) and a note can be transferred by negotiation (which is effectuated by way of an allonge or endorsement attached to the note). Large loans in the United States may be syndicated so that one lender acts as agent for a group of lenders such that the mortgage would be in the name of the lead lender in its capacity as agent for the others. In such a case, a lender would be able to trade its interest in the loan to another lender by an assignment that would not need to be recorded.

Zimbabwe

Zimbabwe

Secured debt may be traded between lenders. This may be effected through an assignment of, or a cession of the debt.