Defaulting lender

Borrowing and lending - documentation.

The concept of a defaulting lender is an element of borrowing and lending documentation, designed for the protection of the borrower.

It includes situations in which the lender fails to honour its commitment to provide funds under borrowing documentation, or gives notice that it will do so, or becomes insolvent.

When a lender becomes a defaulting lender under the borrowing documentation, the borrower enjoys additional rights to protect its position as borrower.

Defaulting lender provisions are a part of Lehman provisions.

Borrowers' rights to prepay

"Borrowers will note that there is no general right to prepay a defaulting lender...

However, some borrowers may want the flexibility to prepay rather than have the defaulting lender remain in the syndicate with voting rights which it may or may not exercise.

This is a point for borrowers to discuss with their arrangers."

The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements - 6th edition - 2022 - p379.

See also

• Arranger
• Default
• Documentation
• Event of default
• Finance party default
• Investment Grade Agreements
• Lehman provisions
• Loan agreement
• Loan Market Association (LMA)
• Prepayment
• Syndicate

Other resource

• The ACT Borrower’s Guide to the LMA’s Investment Grade Agreements - 2022 - p378-379