Clause primer
Participation elevation clause
It requires the grantor of a participation to convert it into a direct assignment, so the participant becomes a lender of record, when stated conditions are met.
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: elevation provision, elevation to assignment, conversion of participation. Where you find it: Loan participation agreements, master participation agreements, secondary loan trading confirmations and receivables participation arrangements.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
At the Participant's request, the Grantor shall use commercially reasonable efforts to elevate the Participation by assigning to the Participant the Grantor's rights and obligations in the Participated Interest under the Credit Agreement. Elevation shall occur only if (a) any consent of the Borrower or Agent required under the Credit Agreement has been obtained, (b) the Participant qualifies as an eligible assignee, and (c) the Participant pays any assignment fee. Pending elevation, the Grantor shall continue to hold the Participated Interest for the Participant's benefit. If elevation cannot be achieved within 60 days, either party may require the Participation to continue on its existing terms.
How it works
Request and effort standard
Elevation starts at the participant's request and the grantor commits to an effort standard, here commercially reasonable efforts. Check whether the obligation is absolute or only an effort to obtain consents, since the grantor cannot control third parties.
Consent conditions
The underlying credit agreement usually requires the borrower's and the agent's consent to an assignment, and the participation cannot override that. Check whether borrower consent falls away during an event of default.
Eligibility and fees
The participant must qualify as an eligible assignee and bear the transfer fee. Sanctions, competitor and disqualified lender lists may prevent elevation entirely.
Interim position
Until elevation, the grantor holds the interest for the participant. The fallback lets the parties stop chasing elevation and keep the participation running.
Why it is there
A participant has only a contract claim against the grantor, so it carries the grantor's credit risk and has limited voting rights under the loan. Elevation gives the participant direct rights against the borrower, removes the grantor's insolvency risk and lets it vote and act on its own. Participations are often used when consents cannot be obtained quickly at trade date, and elevation is the agreed route to the intended end position.
How it works with other clauses
- The assignment and participation clause of the underlying credit agreement controls whether and how elevation can happen.
- Voting rights under the participation agreement apply only until elevation, after which the participant votes directly.
- Tax gross-up and increased cost provisions may limit what an elevated participant can claim to what the grantor could have claimed.
- In receivables programs, elevation may affect true sale analysis and notice to obligors, so review the program documents before agreeing.
Negotiating it
Who it protects: The participant
If it protects you
- Ask for an obligation to elevate, not just effort, once consents are obtained.
- Require the grantor to request consents promptly and to elevate automatically on the grantor's insolvency or downgrade.
- Allocate elevation costs to the grantor where the delay is caused by the grantor.
If it runs against you
- Standard ask: an effort standard tied only to obtaining consents required under the credit agreement; fallback is a fixed time period after which the obligation ends.
- Make clear the participant bears assignment fees and its own costs.
- Exclude any duty to elevate to a disqualified or ineligible assignee.
Escalate before accepting: For a grantor, an absolute obligation to elevate regardless of third-party consents, since it may be impossible to perform without breaching the credit agreement.
What AI explanations get wrong
- Assuming elevation can happen without borrower or agent consent. Check the assignment provisions of the underlying credit agreement.
- Treating the participant as a lender of record before elevation. Check who holds title and who votes.
- Ignoring disqualified lender lists. Check whether the participant is on any restricted list.
- Missing what happens if elevation fails. Check the fallback and any deadline.
Where the law varies
Whether a participation is treated as a true sale or as a loan to the grantor, and therefore how the participant fares if the grantor becomes insolvent, depends on governing law and the terms of the participation.
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Agent Kit 1: Contract Review and Negotiation.