Loss Share Agreement for Canada

Loss Share Agreement Template for Canada

A Loss Share Agreement under Canadian law is a sophisticated financial contract that establishes a risk-sharing arrangement between two or more parties, typically involving financial institutions or asset purchasers. The agreement, governed by Canadian federal and provincial regulations, outlines how parties will share potential losses on specified assets or portfolios. It includes detailed mechanisms for loss calculation, claim procedures, payment terms, and reporting requirements, while ensuring compliance with Canadian banking and financial services regulations, particularly the Bank Act and relevant provincial legislation.

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What is a Loss Share Agreement?

The Loss Share Agreement is a critical instrument in Canadian financial transactions, particularly utilized in scenarios involving asset transfers, bank acquisitions, or portfolio management arrangements. This agreement type is commonly employed when one party seeks to transfer certain assets while sharing the potential downside risk with another party. The document becomes especially relevant in scenarios such as bank acquisitions, loan portfolio sales, or structured finance transactions. Under Canadian jurisdiction, these agreements must comply with federal legislation such as the Bank Act and provincial regulations governing financial institutions. The Loss Share Agreement typically details the specific assets covered, loss-sharing percentages, calculation methodologies, claim procedures, and reporting requirements. It's particularly important in risk mitigation strategies and is often scrutinized by Canadian regulatory authorities, especially when involving regulated financial institutions.

What sections should be included in a Loss Share Agreement?

1. Parties: Identification of the parties entering into the loss share agreement

2. Background: Context of the agreement, including the transaction or relationship giving rise to the loss sharing arrangement

3. Definitions: Detailed definitions of key terms, including 'Covered Assets', 'Loss', 'Shared-Loss', 'Recovery', and other technical terms

4. Scope of Agreement: Definition of assets covered by the loss share arrangement and any explicit exclusions

5. Loss Share Mechanism: Core terms defining how losses will be shared, including percentages, thresholds, and caps

6. Calculation of Losses: Methodology for calculating losses, including timing of recognition and valuation methods

7. Claims Process: Procedures for submitting, documenting, and validating loss claims

8. Payment Terms: Timing and method of loss share payments between parties

9. Reporting Requirements: Regular reporting obligations regarding covered assets and losses

10. Record Keeping: Requirements for maintaining records of covered assets and losses

11. Representations and Warranties: Standard representations and warranties from both parties

12. Term and Termination: Duration of the agreement and circumstances for early termination

13. Dispute Resolution: Procedures for resolving disagreements between parties

14. Confidentiality: Provisions regarding confidential treatment of information

15. General Provisions: Standard boilerplate provisions including notices, amendments, governing law, etc.

What sections are optional to include in a Loss Share Agreement?

1. Regulatory Compliance: Required when either party is subject to specific regulatory oversight or when the agreement needs to comply with particular regulatory requirements

2. Third-Party Servicer Provisions: Needed when a third party is involved in servicing the covered assets

3. Special Asset Classes: Required when specific asset classes need unique treatment or calculation methods

4. True-Up Mechanism: Optional section for periodic reconciliation of estimated versus actual losses

5. Audit Rights: Detailed audit provisions when enhanced oversight is required

6. Recovery Sharing: Provisions for sharing recoveries on previously claimed losses, if applicable

7. Change in Law Provisions: Required when regulatory changes could significantly impact the agreement

8. Cross-Border Provisions: Needed when the agreement involves assets or parties in multiple jurisdictions

What schedules should be included in a Loss Share Agreement?

1. Schedule A - Covered Asset Schedule: Detailed listing of all assets covered under the agreement

2. Schedule B - Loss Calculation Methodology: Detailed mathematical formulas and examples for loss calculations

3. Schedule C - Claims Documentation Requirements: Specific requirements for supporting documentation for loss claims

4. Schedule D - Reporting Templates: Standard formats for required regular reports

5. Schedule E - Service Level Requirements: Operational requirements and timelines for claims processing

6. Schedule F - Excluded Assets: Specific listing of assets explicitly excluded from coverage

7. Appendix 1 - Form of Monthly Report: Template for monthly reporting requirements

8. Appendix 2 - Form of Loss Claim: Standard form for submitting loss claims

9. Appendix 3 - Contact Information: List of key contacts and escalation procedures

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Canada

Publisher

Genie AI

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Banking

Financial Services

Insurance

Asset Management

Investment Banking

Real Estate

Private Equity

Government & Public Sector

Mergers & Acquisitions

Distressed Asset Management

Relevant Teams

Legal

Risk Management

Finance

Compliance

Treasury

Credit Risk

Portfolio Management

Regulatory Affairs

Asset Management

Due Diligence

Financial Control

Investment

Operations

Relevant Roles

Chief Risk Officer

Chief Financial Officer

Portfolio Manager

Risk Management Director

Legal Counsel

Compliance Officer

Asset Manager

Investment Director

Treasury Manager

Financial Controller

Due Diligence Manager

Transaction Manager

Credit Risk Analyst

Portfolio Analyst

Regulatory Compliance Manager

Industries
Teams

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