Administrative Agent's Role in Undersecured Claims Explained
In handling the unsecured part of an undersecured claim, an administrative agent's role is generally limited to administrative tasks and does not involve making decisions on how to treat the unsecured portion of the claim unless explicitly directed by the requisite lenders or as specified in the credit agreement.
- Distribution of Payments: The administrative agent is responsible for distributing payments to lenders according to the terms of the credit agreement. For undersecured claims, this means that after the secured portion is satisfied (to the extent of the collateral's value), any remaining amount due would be treated as an unsecured claim. 14
- No Fiduciary Duty: The administrative agent does not have a fiduciary duty to unsecured creditors or any duty to maximize recoveries for them unless explicitly stated in the credit agreement. The agent's duties are typically limited to those expressly set forth in the agreement. 15
- Reliance on Credit Agreement: The administrative agent relies on the credit agreement for guidance on how to handle claims. If the agreement specifies how undersecured claims are to be treated, the agent will follow those instructions. Otherwise, the agent does not have the authority to make decisions on how to allocate payments beyond what is specified. 12
- Bankruptcy Proceedings: In bankruptcy, the treatment of undersecured claims is governed by bankruptcy law. The administrative agent may need to file a proof of claim on behalf of the lenders and participate in hearings, but the agent's role is still limited to administrative tasks as directed by the lenders or the court. 35