Posted on ABA Banking Journal’s Unconventional Wisdom blog Friday, July 22, 2011.

Multi-lender loan packages may not treat all lenders fairly in default situation

Could securing all of a borrower’s obligations actually increase the credit risk to its lenders?

Although this question may seem counter-intuitive, we maintain that expanding the scope of obligations secured under a credit agreement can potentially misprice the true credit risk to lenders and render it more difficult for them to recover their principal in a default scenario.

The objective of this article is to help lenders and counsel evaluate and address such risks when documenting financial transactions.

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