Sub-Participation Agreements

While there is no automatic right for the subcontractor to pay or increase in the event of the licensor`s insolvency, some market participants often include in the sub-participation agreement an “increase provision” that allows the subcontractor to request either (i) the subcontractor`s collection from a lender with a record position (which confers direct rights and obligations vis-à-vis the borrower). or (ii) the loan is transferred to a third party (with the sub-participant`s intention to take a new sub-equity with that third party). Financial players in the troubled market in Spain often use LMA`s sub-participation agreement. However, `partial participation` is not a concept traditionally recognised by Spanish law. This led borrowers to oppose enforcement and argue that such an agreement should be re-elected as an assignment of receivables.