Participations in the loan are sold by the lead bank to other banks. A separate contract called a loan participation agreement is structured and agreed among the banks. Loan participations can either be made with equal risk sharing for all loan participants, or on a senior/subordinated basis, where the senior lender is paid first and the subordinate loan participation paid only if there is sufficient funds left over to make the payments.
A Wisconsin Participation Agreement in connection with a Secured Loan Agreement is a legal document that outlines the terms and conditions under which a third party (known as the participant) agrees to participate in a secured loan transaction in the state of Wisconsin. In this agreement, the participant becomes a lender or investor who provides a portion of the funds needed for the loan. The participant's involvement allows the borrower to meet its financing needs while minimizing the risk exposure of the primary lender. Wisconsin's laws recognize several types of Participation Agreements that can be entered into in connection with Secured Loan Agreements. These agreements may include: 1. Traditional Participation Agreement: This type of agreement establishes the rights and obligations of both the participant and the primary lender. It specifies the participant's share of the loan, the allocated interest rate, principal repayment terms, and other relevant provisions. 2. Recourse Participation Agreement: In this type of agreement, the participant takes on a certain level of risk beyond their allocated portion of the loan. If the borrower defaults, the participant may be obligated to cover a percentage of the outstanding debt, even if it exceeds their initial investment. 3. Non-Recourse Participation Agreement: Unlike the recourse agreement, in this type, the participant's liability is limited to the extent of their investment. If the borrower defaults, the participant is only responsible for their allocated share and is not obligated to cover any additional debt. The Wisconsin Participation Agreement in connection with a Secured Loan Agreement typically includes key provisions such as: 1. Loan terms: This section outlines the principal amount, interest rate, maturity date, payment schedule, and any conditions for prepayment or extension. 2. Participation percentage: It specifies the participant's allocated portion of the loan, usually expressed as a percentage. 3. Collateral and security interests: The agreement identifies the collateral securing the loan and outlines the participant's rights and priorities in case of default. 4. Default and remedies: It explains the events that would constitute a default and the actions the participant and primary lender may take in such circumstances. 5. Representations and warranties: This section includes statements by both parties about their legal capacity, authority, and financial standing. 6. Governing law and jurisdiction: It states that the agreement will be governed by Wisconsin law and specifies the jurisdiction where any disputes will be adjudicated. By entering into a Wisconsin Participation Agreement in connection with a Secured Loan Agreement, both the participant and the primary lender can benefit. The participant gains the opportunity to profit from the loan transaction while sharing the risk with the primary lender. Meanwhile, the primary lender can increase its lending capacity and mitigate risk by spreading it across multiple participants.
