Bank round tables in international loans: mechanisms and precautions

The financing of major international projects often exceeds the capacity of a single banking institution. In such cases, it is essential to set up a bank "pool" to spread the risks and raise sufficient capital.

The need for banking pools

Against a backdrop of fierce international competition, the development of exports is a key factor in economic growth. Export transactions generate a significant need for financing at favourable rates, both in the short term and in the medium and long term.

The risks inherent in international trade - unfamiliarity with foreign partners, differences in legal systems, commercial and political risks - make such financing particularly tricky.

For large-scale international credits, such as buyer creditIn this context, banking pools are essential. This practice enables risks to be shared between several financial institutions.

The diversity of round table discussions and their legal status

Banking financing rounds are characterised by their great diversity. According to an article by Gautier Bourdeaux published in the JurisClasseur Droit bancaire et financier:

"Banks may act either ostensibly vis-à-vis the borrower, as in the case of joint venture loans or bank sub-participations, or ostensibly, as in the case of syndicated loans.

The legal classification of these groupings poses a problem. French case law has sometimes identified de facto companies (CA Paris, 4 July 1975; T. com. Paris, 12 October 1984). But this classification remains controversial for syndicated loans, where each bank intends to grant an autonomous loan, albeit managed collectively.

Non-solidarity round tables are "sui generis" contracts created at the initiative of a lead banker.

The creation of the round table and the role of the lead partner

The lead banker, chosen by the exporter, plays a decisive role:

• He negotiates the terms of the credit facility
• It is seeking the participation of other establishments
• It generally carries out ancillary transactions (accompanying financial loans, first demand guarantees, swaps).

This role entails risks. The lead bank may be held liable if it provides inaccurate or imprecise information to the other participating banks. This liability, which is a tort under French law, arises in the context of pre-contractual discussions.

The "Colotronis" case before the New York courts highlighted this type of risk.

Relations between pool banks

In France, relations between the various banks involved in the financing round are governed by the "charter for relations between banks in medium-term buyer credit" for loans benefiting from a "guarantee".public intervention. For other credits, conventions or usage shall prevail.

The pool is managed on a day-to-day basis by the lead banker:

• Checks the conditions precedent to the use of credit
• Examines the documents submitted by the buyer
• Manages financial flows (drawdowns and repayments)

For major decisions, there are two approaches:

• In the case of loans with public intervention, the decision-making power lies with the lead arranger after informing the banks in the pool.
• In the case of unrestricted loans, the majority rule applies, calculated on the basis of the percentage holding in the loan.

The relationship between lenders and borrowers

The question of solidarity between banks towards borrowers is crucial:

In the case of co-lead institutions, the French charter governing relations between banks in medium-term buyer credit provides for joint and several liability. This solution is explained by the role of COFACE, which covers credit risks.

On the other hand, there is no joint and several liability in the case of free syndicated buyer loans. Banks regard these transactions as a juxtaposition of separate bank loans.

Specific legal risks and case law

French case law on buyer credit remains limited, in particular because of arbitration clauses that generally provide for arbitration in Paris under the Rules of the International Chamber of Commerce.

The French courts have given the main rulings:

• Recourse by subcontractors against the bank (Cass. com., 12 March 1985; Cass. com., 9 December 1986)
• First demand guarantees (Cass. com., 3 March 1987)
• Additional bridging loans (Cass. com., 2 November 1994)

One notable legal point concerns the direct payment mechanism. The Court of Cassation overturned a decision by the Bordeaux Court of Appeal, which held that the supplier could rely on a "stipulation made for its benefit". According to the High Court (Cass. com., 13 February 1996), as the banker is the borrower's agent, he cannot be criticised for having carried out his principal's orders.

Precautions to take when negotiating

To ensure the security of these complex operations, a number of precautions need to be taken:

1. Robust legal documentationstandard agreements, dispute resolution clauses, choice of law
2. Clarification of the role of the lead partnerdefine its powers and responsibilities precisely
3. Decision-making mechanismsspecify voting procedures and majority thresholds for major decisions
4. Joint and several clauses or no joint and several clausesclearly spell out the applicable regime
5. Attestations by jurisconsultsverify the legal effectiveness of the obligations under the foreign laws concerned
6. Securing financial flowsdefine direct payment mechanisms precisely

The financial institutions involved in these operations must pay particular attention to the drafting of the agreements. Support from a specialist lawyer enables us to anticipate potential difficulties and structure the banking round effectively.

When several million euros are at stake in an international transaction, the quality of the legal documentation is not a luxury but a necessity.

Sources

• G. Bourdeaux, Fasc. 1050: Export credits. Crédits acheteurs et fournisseurs, JurisClasseur Droit bancaire et financier, 2 September 2009
• Cass. com. 13 February 1996, D. 1996, p. 381, note D.-R. Martin
• Cass. com. 22 May 1991, RD bancaire et bourse 1990, p. 211
• CA Paris, 4 July 1975, Gaz. Pal. 1975, 2, p. 727
• J. Bertran de Balanda, À la recherche de la nature juridique des conventions de sous-participation bancaires, JCP E 1996, I, 572.
• F. Porté, Les tours de table bancaires, Banque et droit 1995, n° 42, p. 9
• Y. Zein, Les pools bancaires. Aspects juridiques, Economica, 1998