Linklaters develops a true sale upgrade module for English law loan subparticipations

Linklaters has developed an innovative upgrade module for English law subparticipations designed to help loan and portfolio trading in a busy market driven by Basel 3.1 regulatory capital developments.

A well-known difference between US and English law loan subparticipations is that US law subparticipations create a true sale-like interest, protecting the subparticipant's interest from counterparty insolvency, while English law ones do not. This upgrade module, developed by Linklaters, can be added as a “sticker” on to standard subparticipation documentation to achieve true sale of the underlying loan being subparticipated, without impacting the subparticipation documentary architecture or the underlying loan.

Alex Shopov, structured finance partner at Linklaters, who led the cross-practice team who built the upgrade module, commented:

“In addition to the benefit of insolvency remoteness, this new tool brings an important advantage. It helps US financial institutions achieve US GAAP derecognition of their English law subparticipation arrangements, used in their European operations in a similar way to what they are accustomed to when using US law-governed documents. There was the need for something both powerful, yet concise, which could easily be clipped on to the existing documents – no soldering, nor rewiring required. As loan and portfolio trading gathers pace, we are glad to be able to help our clients with this new development.”

Linklaters’ global structured finance and banking lawyers work on complex, innovative transactions, almost invariably involving several jurisdictions, and this innovative development reinforces the firm’s position at the forefront of the market.