The process of restructuring a loan facility opens the door to significant litigation and regulatory exposure for lenders.
Typically, once a borrower defaults on its loan facility, a restructuring unfolds on two tracks. The borrower and agent for the loan syndicate work to renegotiate terms of the underlying loan. At the same time, the agent for the loan syndicate and its counsel, on the one hand, and members of the loan syndicate, on the other hand, hold separate discussions that focus not only on confidential information provided by the borrower about its business and financial operations, but also on the lender group's legal options including litigation, foreclosure and bankruptcy. Given the sensitive nature of these lender group discussions — and the potential for regulatory liability — these communications must be carefully managed.