7 Common Disputes in Syndicated Loans: Lender Conflicts Explained
Common disputes that arise between lenders in a syndicated loan include:
- Conflicts of Interest: Conflicts can emerge between lenders with different levels of relationship with the borrower, such as lead lenders who may have a stronger incentive to grant concessions to the borrower compared to other lenders. 45
- Voting Rights and Majority Thresholds: Disputes can arise over the voting rules and majority thresholds required for making amendments to the loan agreement, which can be influenced by conflicts of interest within the syndicate. 45
- Enforcement Actions: Individual lenders may disagree with the syndicate's decision on enforcement actions, such as taking action against a guarantor of debt obligations following a default. 12
- Information Sharing and Notice: Disputes can occur over the sharing of information and notice rights, particularly regarding defaults and enforcement actions. 68
- Liability and Standard of Care: Lenders may disagree over the liability and standard of care owed by the administrative agent to the participants, including issues related to willful misconduct or gross negligence. 68
- Decision-Making Authority: Conflicts can arise over the authority of the administrative agent to make decisions on behalf of the syndicate, including the level of consent required from participant lenders for certain actions. 36
- Amendments and Workouts: Disputes can emerge over amendments to the loan agreement and workout arrangements, particularly if they favor certain lenders over others. 7