Sub participation

Definition

Sub-participation. It is an agreement between a finance provider who has incurred or is to incur a financial exposure on, or lend funds to, a debtor or obligor and another finance provider under which the second finance provider either provides funds to the first finance provider to fund that exposure or loan (in the case of a funded sub-participation) or provides a commitment to cover any losses of the first finance provider (in the case of an unfunded sub-participation).

Repayment of the second finance provider, in the case of a funded sub-participation, is normally dependent on the receipt of the corresponding amounts by the first finance provider from the debtor or obligor. This may be the case for an unfunded sub-participation.

The existence of the second finance provider is normally undisclosed to the debtor or obligor. The second finance provider may, depending on the law governing the sub-participation agreement, receive a derivative interest in the exposure or loan or may simply acquire rights against the first finance provider rather than the debtor or obligor.