By Charlotte GAUCHON
23 March 2025
In the world of structured finance, bank sub-participation operates in the shadows. Unlike direct syndication, where all the lenders sign the contractual documentation, this mechanism allows a bank to transfer all or part of its credit risk to other institutions, often without the borrower's knowledge. 1. Definition and forms of sub-participation Sub-participation takes place without any specific legal formalities. For legal purposes, a simple exchange of letters, a certificate of participation or an interbank protocol is sufficient. Sub-participation takes two main forms. Risk-only sub-participation In this configuration («unfunded sub-participation»), the sub-participant undertakes only to take a percentage of the risk. The lead manager is responsible for the cash flow. The sub-participant becomes a conditional debtor and receives commissions in return. Article 5-2, paragraph 3 of CRBF regulation 91-01 of 16 January 1991 specifies that each institution involved «records its share of the risk in the off-balance sheet...
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