New rules for companies wishing to join a syndicated credit (loan) agreement
Pepeliaev Group advises that new statutory corporate rules have taken effect for companies wishing to join a syndicated credit (loan) agreement
On 1 February of the current year, Federal Law No. 486-FZ “On syndicated credit (loans)” dated 31 December 2017 took effect. The Law reflects the specifics of legal regulation in relation to a syndicated credit (loan) agreement between a borrower and multiple creditors (a syndicate of creditors). Previously, Russian legislation also provided for money to be granted on a syndicated (consortium) basis. However, the new law improves the previous regulation of the matter in terms of unity and consistency. In addition, the changes that have come into force seek to eliminate the legal uncertainty of corporate legislation in respect of how such transactions are structured.
Firstly, only legal entities and individual entrepreneurs can act as borrowers under a syndicated credit (loan) agreement, whereas the participants of a syndicate of creditors may only be types of legal entities limited by law, such as credit institutions, international financial organisations, private pension funds, institutions for the development of Russia's Far East, and public funds for industrial development.
For instance, the syndicate of creditors can include a special purpose vehicle for project financing (“SPVPF”) which supports long-term investment projects by virtue of syndicated credit (loan) agreements. Although special purpose financial vehicles (“SFVs”) also fall within the category of special purpose vehicles (along with SPVPFs), SFVs are not intended to be involved as one of the creditors under syndicated credit (loan) agreements.
Secondly, a syndicated credit (loan) agreement is based on so-called quasi-corporate relationships which arise between a borrower, the syndicate of creditors, the credit manager, the organiser(s) of the syndicated credit (loan), and the pledge manager.
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In other words, when syndicated credit agreements are planned and entered into, the rules and institutions of corporate law are involved on a compulsory basis. For instance, any issues relating to inter-creditor agreements being entered into and a credit manager being vested with the corresponding powers, and to the participants of a syndicate of creditors exercising their rights and performing their obligations, are solved by collectively making decisions based on the relevant rules of corporate law relating to the convening and holding of meetings. This is directly stipulated by the Federal Law “On syndicated credits (loans)”. |
Thirdly, the structure of a syndicated credit (loan) agreement often provides for a pledge management agreement to be entered into and a pledge manager to be engaged. Quasi-corporate relationships may arise owing to the fact that the rights and obligations that the pledgees have assumed in relation to each other are regulated by the rules for a simple partnership agreement, unless otherwise set out by law or implied by the nature of the parties’ obligations.
Fourthly, the new law introduces new requirements when pledged securities and pledged shares in the share capital of an LLC are registered. According to the general rule, uncertified registered securities are deemed pledged when an entry about the pledge in relation to the account (the depo account) has been made in which the rights of the holder of the uncertified registered securities are recorded. When there is a pledge manager under a syndicated credit (loan) agreement, the information about the person in whose favour the encumbrance has been introduced should include information concerning the pledge manager stating that the pledge has been established and that there is a pledge management agreement. It should also be noted that if a syndicated credit (loan) agreement provides for a pledged share in the share capital in an LLC, the information concerning such a management agreement must be reflected in the Unified State Register of Legal Entities.
What to think about, and what to note
The provisions of the Federal Law “On syndicated credits (loans)” apply to relations which arose after 1 February 2018. The parties to syndicated credit (loan) agreements entered into before then may make provision for the new rules to apply after that date to the rights and obligations that arose out of such agreements. In this respect, it may become necessary to adjust syndicated credit (loan) agreements to the provisions of the new law, to draft rules concerning the procedure for making collective decisions and vesting powers in the credit manager, and to amend the entry in the Unified State Register of Legal Entities regarding the pledge manager.
Help from your advisers
Pepeliaev Group’s lawyers will readily provide the necessary legal support on all issues of corporate law in relation to the activities of legal entities in the sphere of syndicated lending.