Essential Considerations in Navigating Agency Replacements

In times of economic growth, lending opportunities are aplenty and there is often a flurry of activity to close deals quickly and put credit to work. Borrowers, lenders, advisors, counsels, facility agents and security agents work in synergy in settling the documentation and setting up the ancillary operative systems and processes. The common intention and hope are that loan facilities are duly serviced, and each interest payment or loan repayment is settled on time. There are many instances where this does happen, and all is well. However, some transactions do fall behind for various reasons. COVID-19, for instance, has shown how the world can change drastically in a short span of time and catch us off guard.

If in the unfortunate situation that a borrower is running the risk of a default, lenders – especially those in a syndicate or club deal – must be able to confidently turn to the agents on the transaction. Agents are entrusted to administer the transaction with heightened scrutiny and must be ready to take prompt and decisive action to accelerate the loan facility if necessary and enforce on security rights. There is usually a flurry of consent and waiver requests, amendment exercises, calculation of principal and/or default interest, and other special actions. Agents need to be sufficiently nimble and well-versed in the documentation to manage any issues in a fair, decisive and proactive manner.

Unfortunately, many existing agents may find themselves ill-equipped or disinclined to handle the complexities of distressed and special situations. Parties often find themselves with an urgent need to appoint commercially capable replacements on top of managing their own credit issues and/or restructurings. Agency replacements are unlikely at the top of most parties’ agenda, but agents do play a key crucial role in facilitating any resolution ahead.