The Subordinated Loan Agreement is used when parties wish to establish a lending arrangement where the lender's claims are contractually subordinated to other specified creditors. This type of agreement is particularly common in Hong Kong for regulatory capital arrangements in financial institutions, corporate group restructurings, and project finance transactions. The document addresses key aspects including subordination mechanics, payment restrictions, limited enforcement rights, and regulatory compliance requirements under Hong Kong law. It's essential for capital structure planning and often interfaces with regulatory requirements, particularly when used by authorized institutions under Hong Kong Monetary Authority supervision. The agreement typically requires careful consideration of existing senior debt arrangements and may need to align with intercreditor arrangements.
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1. Parties: Identification of the Lender, Borrower, and any Security Trustee/Agent
2. Background: Context of the subordinated loan and its purpose
3. Definitions and Interpretation: Definitions of terms, interpretation rules, and references to regulations
4. The Facility: Amount, purpose, and conditions of the subordinated loan
5. Subordination and Ranking: Core subordination provisions, ranking of debt, payment restrictions
6. Interest: Interest rate, calculation periods, payment dates, and default interest
7. Repayment and Prepayment: Repayment terms, voluntary and mandatory prepayment provisions
8. Tax Gross Up and Indemnities: Tax provisions and related indemnities
9. Representations and Warranties: Standard and subordinated debt-specific representations
10. Information Undertakings: Financial and other information requirements
11. General Undertakings: Borrower's obligations and restrictions
12. Events of Default: Default triggers and consequences, modified for subordinated nature
13. Changes to Parties: Transfer and assignment provisions
14. Administration: Payment mechanics, calculations, and notices
15. Governing Law and Enforcement: Choice of law and jurisdiction provisions
1. Security: Include if any security is being provided (unusual for subordinated debt)
2. Regulatory Capital: Include if loan is to count as regulatory capital for banking purposes
3. Senior Creditor Rights: Include if there's direct interface with senior creditors
4. Turnover Provisions: Include if specific turnover of payments to senior creditors required
5. Limited Recourse: Include if recourse to the borrower is to be limited
6. Intercreditor Provisions: Include if not covered in separate intercreditor agreement
7. Currency Conversion: Include for multi-currency facilities
1. Form of Drawdown Request: Standard form for requesting loan disbursement
2. Conditions Precedent: List of required documents and conditions
3. Form of Transfer Certificate: Template for transferring loan participation
4. Repayment Schedule: If amortizing, schedule of repayment dates and amounts
5. Form of Compliance Certificate: Template for periodic compliance certification
6. Form of Subordination Deed: If separate deed required for subordination mechanics
7. Regulatory Requirements: Specific regulatory capital requirements if applicable
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