Best Practices When Hiring a Replacement or Successor Agent for a Distressed Credit Facility

Introduction

Administrative agents on distressed credit facilities periodically resign or are removed by the lenders. An administrative agent may resign or be removed for a number of reasons, including because it has sold its position in the credit, it is reluctant or unwilling to take certain actions that would damage its relationship with the borrower, or because of a perceived or actual conflict of interest.

Administrative agents handle the routine responsibilities and duties necessary for the orderly administration of a syndicated loan. Once a syndicated loan closes, payments between the borrower and lenders are made through the administrative agent. Other duties of the administrative agent include coordinating with the lenders and lenders' counsel, setting interest rates, maintaining the loan register, and processing loan trades. In a restructuring or bankruptcy scenario, the administrative agent may also coordinate with lender ad-hoc steering committees, file proofs of claim, communicate with the claims agent, and disburse collateral or sale proceeds.  Acting at the direction of the lenders, administrative agent's declare events of default, enforce remedies, and foreclose on collateral.

The resignation or removal of an administrative agent can interrupt the orderly administration of a credit facility if not handled correctly. Fortunately, credit facilities are flexible and the process of appointing a new administrative agent, often referred to as a successor agent or replacement agent, can be managed smoothly.

Topics discussed in this white paper include:

• Why Would an Administrative Agent Resign or be Removed?
• The Administrative Agent in a Restructuring or Distressed Credit
• How is the Resignation or Removal Process Initiated?
• Appointing a New Administrative Agent
• Conclusion