1. Where a new party to a contract is substituted for an existing party, the effect of which is to transfer the burden of the contract, it is called a ________.
  2. Novation does not require the consent of the "continuing" party. True or false?

    Novation actually requires the continuing party to sign a new (novation) contract.
  3. From the point of view of a new bank keen to establish a relationship with the borrower, name one disadvantage of novation?
    If the loan is secured and another creditor of the borrower has taken security since the original loan was made, the new bank will rank behind that other creditor to the extent that both secured creditors have security over the same assets.
  4. If a bank novates its interest in a bilateral facility to another bank, this will always result in a change
    of the borrower's day to day banking relationship under that facility.
    True or false?

    For a bilateral loan, the relationship will change, but this will not usually be true upon novation of a participation under a syndicated facility.
  5. The relationship between a bank and its borrower has soured and both parties wish to terminate it.
    Name two facilities provided by the bank may in appropriate circumstances be transferred by assignment?
    • - A fully drawn term loan
    • - A fully drawn credit facility

    To decide whether appropriate circumstances apply, we would need to check whether the bank has continuing obligations to lend. This will usually be the case in respect of a revolving credit facility, but not always.
  6. Name a facility which cannot be transferred by assignment
    1. A revolving credit facility before the final "roll-over" date.

    A revolving credit facility may not be assigned unless there is no further opportunity for the borrower to request funds
  7. Sub-participation of an interest under a bilateral loan facility is an effective way of offloading risk without losing the relationship with the borrower. True or false?
Card Set