Jon Kibbe, Larry G. Halperin, Michael Friedman, Publications
Memorandum: The Second Risk that Keeps Loan Participants Up at Night
March 19, 2008
Owners of bank loan participations take on two kinds of credit risk: (i) the borrower's failure to pay the underlying bank loan, and (ii) the loan participation grantor's bankruptcy. The first risk is well understood and carefully analyzed in each transaction. The memorandum below written by our partners Jon Kibbe, Larry Halperin and Michael Friedman focuses on the second kind of credit risk assumed by a participant -- grantor insolvency. The risk of grantor insolvency is
especially significant in today's tumultuous market, where counterparty risk is heightened and assumptions about counterparty solvency are questioned as never before.
