Lender Cooperation Agreements in Syndicated Loans: Key Terms, Objectives and Obstacles; Advantages and Disadvantages

Cooperation agreements are a defensive strategy by syndicated lenders in response to the growing number of liability management exercises (LMEs) initiated by distressed borrowers to gain additional liquidity and restructure debt, usually to the detriment of other lenders. Under a cooperation agreement, a lender agrees with a subset of other lenders that it will not enter into any side deal with the borrower, the borrower's affiliates, or noncooperating lenders at the expense of other lenders that are part of the cooperation agreement. By banding together, individual lenders protect their position in the capital structure and enhance their bargaining power in a restructuring situation or when an LME has been executed.

Cooperation agreements are typically sought by lenders early on in a loan's life cycle or during the initial stages of a borrower's distress and are intended to be in effect for a short period of time. These agreements can strengthen flexible credit documents and introduce new terms to guard against LMEs. 

While the biggest advantage of a cooperation agreement is that it unites creditors, one key disadvantage is that these agreements often only allow transfers of loans to other cooperating parties or buyers that become cooperating parties when they purchase the loan. These transfer restrictions can potentially limit an investor's liquidity because these loans often trade at different price points than non-cooperation loans.

Listen as our expert panel reviews the key terms, objectives, and obstacles underlying cooperation agreements and provides guidance for lenders utilizing these agreements to enhance their bargaining power while also mitigating the risk of being left behind as an excluded lender.

I. Background: current market conditions and the increase in LMEs

II. Purpose and scope of a cooperation agreement

III. Cooperation agreements vs. restructuring support agreements, participation agreements, and plan support agreements

IV. Timing and scenarios when cooperation agreements come into play

V. Key terms, conditions, and limitations

VI. Advantages and disadvantages

VII. Obstacles to cooperation and key factors that contribute to the success of a cooperation agreement

VIII. Transfer restrictions and their impact on loan trades

IX. Enforceability issues in connection with a borrower's plan of reorganization in bankruptcy

X. Antitrust considerations

XI. LSTA Market Advisory

XII. Practitioner pointers and key takeaways 

The panel will address these and other key considerations:

• How does a cooperation agreement prevent creditor-on-creditor violence when a borrower has undertaken an LME?
• What are the advantages and disadvantages of cooperation agreements?
• When should a lender consider joining a cooperation agreement?
• What are the key considerations and negotiation strategies with cooperation agreements?
• What are the potential enforceability and antitrust issues relating to cooperation agreements?