CHAPTER 1 INTERNATIONAL COMMERCIAL LOAN 1
1 Commercial Loan and Loan Agreement 3
1.1 Commercial Loan 3
1.2 Loan Agreement 4
2 Facility and Interest 4
2.1 Facility 4
2.1.1 Term Loan 4
2.1.2 Revolving Loan 5
2.1.3 Other Sub-Facility 5
2.2 Interest and Fees 6
2.2.1 How Interest Works？ 6
2.2.2 LIBOR and Margin 7
2.2.3 From LIBOR to SHIBOR 9
2.2.4 Fixed Interest Rate and Variable Interest Rate 10
2.2.5 Calculation and Payment of Interest 10
2.2.6 Cost and Fees 11
3 Conditions Precedent and Notice of Drawdown 16
3.1 What Are Conditions Precedent？ 16
3.2 Legal Features of Conditions Precedent 20
3.3 Purposes of Conditions Precedent 20
3.4 Notice of Drawdown 21
4 Representations and Warranties 22
4.1 What Are Representations and Warranties？ 22
4.2 Aspects Covered by Representations＆Warranties 23
5 Special Covenants 27
5.1 Negative Pledge Clause 29
5.1.1 Negative Pledge Clause in Legal Sense 29
5.1.2 Negative Pledge Clause in Functionality 30
5.1.3 World Bank Negative Pledge Clause 32
5.1.4 Do Basic Negative Pledge Clauses Create Security Interests？ 34
5.2 Pari Passu Clause 36
5.3 Financial Covenants 37
5.4 Restrictions on Disposals of Assets Clause 38
5.5 Waiver of Sovereign Immunity 38
5.6 Evidence Clause of Indebtedness 39
6 Events of Default and Default Remedies 39
6.1 Events of Default 39
6.2 Typical Clauses of Events of Default 41
6.3 Consequences of the Occurrence of Events of Default 44
6.4 Default Remedies 44
7 Miscellaneous 45
7.1 Dispute Resolution Provisions 45
7.1.1 Generality 45
7.1.2 Arbitration 46
7.1.3 Jurisdiction 46
7.2 Governing Law 47
CHAPTER 2 SYNDICATED LOAN 49
1 Generality 51
1.1 What Are Syndicated Loans？ 51
1.2 Reasons for Syndicated Loans 52
1.2.1 Benefits of Syndicated Loan for Borrowers 52
1.2.2 Benefits of Syndicated Loan for Lenders 53
1.3 Legal Structure of Syndicated Loan 54
1.4 The Syndication Process in Outline 55
1.5 Typical Case of Syndicated Loan 57
1.5.1 Shanghai Disney Resort：Overview 58
1.5.2 Ownership：Main Investors of the Shanghai Disney Resort 59
1.5.3 Business and Financing Schedule 60
1.6 Club Loan：Special Syndicated Loan？ 60
2 Legal Issues in Initial Stage of Syndicated Loan 61
2.1 Mandate 62
2.2 Functions of Arranger 62
2.2.1 Primary Functions of Arranger 62
2.2.2 Multiple Arrangers in Same Syndicatied Loan 63
2.3 Information Memorandum 63
2.3.1 Is Information Memorandum Prospectus？ 64
2.3.2 Arranger’s Liability Because of Defect Information Memorandum 64
2.3.3 Avoidance of Arranger’s Liability 67
2.3.4 Effect of Liability Disclaimers 68
2.4 Offer and Acceptance of Loan 68
2.4.1 Offer of Loan to the Borrower 68
2.4.2 Acceptance by Participants 69
2.5 Payment of Arranger Fees by Borrower 69
2.6 Does Arranger Owe Fiduciary Duties to Participants？ 70
2.6.1 Fiduciary Duties under Common Law：Theory and Practice 70
2.6.2 View Denying Fiduciary Duties 71
2.6.3 “Fiduciary” Academic View 72
3 Legal Issues Based on Syndicated Loan Agreement 74
3.1 Severalty 74
3.1.1 Several Obligation and Commitments of Participants 74
3.1.2 Defaulting Lender Issues 75
3.2 Majority Rule 76
3.2.1 Issues Decided by Majorities 76
3.2.2 Cases Accepted Majority Rule 77
3.2.3 Could Participant Claim Contrary Wishes of Majority？ 78
3.2.4 Criticism on Majority Rule 79
3.3 Unanimous Consent 80
4 Responsibilities and Roles of Agent Bank 80
4.1 Agent Bank：Partner to the Borrower 81
4.2 Agent Bank：Agent of Participants 81
4.3 Rights and Obligations of Agent Bank 82
4.4 Roles of Agent Bank 83
4.4.1 Certification of Compliance with Conditions Precedent 83
4.4.2 Payment Services 85
4.4.3 Monitoring Loan Covenants 86
4.4.4 Duty to Act on Occurrence of Default 87
4.5 Limitation on Liabilities of Agent Bank 89
4.5.1 Disclaimer of Liabilities 89
4.5.2 Ostrich Clauses 90
4.6 Fees and Expenses Paid to Agent Bank 91
CHAPTER 3 LOAN PARTICIPATION AND ASSIGNMENT 93
1 Generality 95
1.1 What Is Loan Participation？ 96
1.1.1 Borrower-Lead Bank Relationship 97
1.1.2 Lead Bank-Participant Relationship 98
1.1.3 Borrower-Participant Relationship 104
1.1.4 Loan Participation v.Syndicated Loan 104
1.2 Why Choose Loan Participations？ 105
1.3 Retention by Lead Bank Risk of Loss 107
2 Participations：Securities or Loans？ 107
2.1 Are Participations Securities？ 109
2.2 Participations Denied as Securities by Leading Cases 112
2.3 Legal Features of True Participations 115
3 Transfer Forms of Loan Participation 115
3.1 Assignment 115
3.2 Sub-Participations 116
3.3 Novation 118
3.4 Risk Participations 119
3.5 Restrictions on Transfer of Loan Interest 120
4 Classification of Loan Participations 121
4.1 Transfer of Participation as Loan 122
4.2 Transfer of Participation as Sale 124
4.3 Transfer of Participation as Trust 126
4.4 Proposal on Model Participation Agreement 129
5 Mechanism for Participants Protection 130
5.1 Reducing Legal Risk of the Participant from Legal Documents 130
5.2 Participant’s Remedies of Claim Against the Lead 135
5.2.1 Remedies Based on Lead’s Misrepresentation Fraud 136
5.2.2 Remedies Based on Lead’s Liable for Intentional Fraud 137
5.2.3 Remedies Based on Lead’s Liable for Breach of Fiduciary Duty 138
5.2.4 Remedies Based on Fraud Claim Under Securities Law 139
CHAPTER 4 PROJECT FINANCE 140
1 The Elaborate Structures 142
1.1 What Is Project Finance？ 142
1.2 Project Company 145
1.2.1 Basic Forms for Ownership of Project 146
1.2.2 Social Responsibility of the Project Company 148
1.3 Other Participants of the Project Finance 151
1.3.1 Host Government and Its Concession 152
1.3.2 Sponsor 153
1.3.3 Lenders 154
1.3.4 Construction Contractor 156
1.3.5 Operator 156
1.3.6 Product Offtaker 157
1.3.7 Feedstock Supplier 157
1.4 Law and Practice of Project Finance in China 157
1.4.1 Development of BOT Project Finance in China 157
1.4.2 Regulations and Rules of the BOT Project Finance in China 158
1.4.3 Laibin B Power Station BOT Project Finance 160
2 Capital Structure of the Project Finance 163
2.1 Various Sources for Financing 163
2.2 Equity and Debt Ratios 164
2.2.1 Equity 164
2.2.2 Debt 165
2.3 The Advantages of the Project Finance 166
2.3.1 Limited Recourse Debt Financing 166
2.3.2 Highly Leveraged Debt 169
2.3.3 Off-Balance-Sheet Treatment 169
3 Risk Identification and Allocation 170
3.1 Overview of Various Risks 170
3.1.1 Classification of Risks 170
3.1.2 Allocation of Risks 171
3.2 Political Risks 172
3.2.1 What Are Political Risks？ 173
3.2.2 Political Risk Insurance 175
3.2.3 Political Risk Insurance Providers 175
3.3 Legal Risks 179
3.3.1 Changes in Law 180
3.3.2 Legal System Status 180
3.4 Risks During Construction 181
3.5 Risks During Operation 182
3.5.1 Operating Risks 182
3.5.2 Market Risks 182
3.5.3 Currency Devaluation Risks 183
4 Major Contracts of the Project Finance 184
4.1 Project Finance Contract 186
4.2 Project Collateral Arrangements 187
4.2.1 Pledge on Project Company’s Shares 188
4.2.2 Pledge on Project Company’s Receivables 188
4.2.3 Floating Charge on Whole Project’s Assets 189
4.2.4 Setting of Step-In Rights 191
4.2.5 Assignment of Rights 193
4.2.6 Other Project Collateral Arrangements 193
4.3 Concession Contract 194
4.4 Construction Contract＆Completion Guarantee 194
4.4.1 Construction Contract 194
4.4.2 Completion Guarantee 196
4.5 Operating Contract 196
4.6 Product Offtake Contracts 197
4.7 Feedstock Supply Contracts 199
4.8 Insurance Contract 199
CHAPTER 5 ASSET SECURITIZATION 201
1 Generality of Asset Securitization 203
1.1 What Is Asset Securitization？ 203
1.2 Reasons for Development of Asset Securitization 205
1.3 Rate Is Lower than Commercial Loan？ 206
1.4 Process of Asset Securitization 207
2 Major Legal Subjects and Elements 209
2.1 Originator 209
2.2 Special Purpose Vehicle（SPV） 210
2.3 True Sale 210
2.3.1 Factors Affecting True Sale 211
2.3.2 True Sale Determination 212
2.3.3 Other Legal Requirements for Transfer of Assets 214
2.4 Bankruptcy Remote 215
2.4.1 Traditional Bankruptcy Attacks 215
2.4.2 Bankruptcy Remote Structure 216
2.5 Credit Enhancement 218
2.5.1 Third-Party Credit Enhancement 218
2.5.2 Internal Credit Enhancements 218
2.6 Rating Asset-Backed Securities 219
2.6.1 What Are Credit Rating Agencies？ 219
2.6.2 Evaluation of General Credit Risk 221
2.6.3 Evaluation of Cash Flow and Collateral Valuation 221
3 Securitized Assets：From Credit Revenues to Intellectual Property 221
3.1 Case of Ford Credit Securitization 222
3.1.1 How Ford Credit Earn Revenues？ 222
3.1.2 Ford Shape-Shifting Asset-Backed Securities 223
3.2 Case of Bowie Bonds：Securitization of Intellectual Property 223
3.2.1 Expansion of Assets of Securitization to Intellectual Property 224
3.2.2 Bowie Bonds：the First Securitization of Music Copyrights’ Future Royalties 225
3.2.3 David Pullman and “Pullman Bonds” 227
4 Asset Securitization in China 229
4.1 Development of Securitization in China 229
4.2 Framework of China’s Securitization Laws and Regulations 230
4.3 Rules About Majors Elements of Securitization in China 231
4.3.1 Originator of Asset-Backed Securitization 231
4.3.2 Credit Assets 232
4.3.3 SPV/Trustee 232
4.3.4 True Sale 232
4.3.5 Credit Rating 233
4.3.6 Issuance and Trading of Asset-Backed Securities 233
4.4 Case Analysis of Securitization of China Construction Bank 234
4.4.1 Introduction 234
4.4.2 Legal Structure 235
4.4.3 Key Participants 235
CHAPTER 6 LETTERS OF CREDIT 237
1 Generality of Letters of Credit 239
1.1 What Is Letter of Credit？ 239
1.1.1 As Instrument of Payment 243
1.1.2 As Sub-Facility of Loan 245
1.1.3 As Conditional Commitment 245
1.1.4 As Obligation Rather than Contract 246
1.2 Parties and Their Relationship 247
1.2.1 Parties Involving Letter of Credit 247
1.2.2 Legal Relationship Among Parties 250
1.3 Laws Applicable to Letter of Credit 254
1.4 Principle of Independence of Letter of Credit 256
1.4.1 Independent from Contract Between Beneficiary and Account Party 257
1.4.2 Independent from Relationship Between Issuer and Account Party 258
1.5 Types of Letter of Credit 258
1.6 Letter of Credit Process 261
2 Strict Compliance 262
2.1 Principle of Strict Compliance 263
2.1.1 Strict Compliance Rule 263
2.1.2 Rule of Appearance 265
2.1.3 Justification for the Principle of Strict Compliance 266
2.1.4 Examination of the Documents 267
2.2 Different Interpretation of Strict Compliance Rule 268
2.2.1 Literal Compliance 269
2.2.2 Substantial Compliance 273
2.2.3 Opinions from the Banker，Importer and Exporter 275
2.3 Refusal of Letter of Credit Payment and Case of Voest-Alpine Trading 276
2.3.1 Introduction of the Case 277
2.3.2 Facts of the Case 277
2.3.3 The Court’s Analysis 279
3 The Fraud Exception Rule 280
3.1 What Are Fraud and Fraud Exception Rule？ 282
3.1.1 Fraud：Exception from Principle of Independence 282
3.1.2 The Sztejn Case 284
3.2 Conditions for Application of Fraud Exception Rule 287
3.2.1 Fraud Committed by the Beneficiary 287
3.2.2 Established Fraud 288
3.2.3 Material Fraud 289
3.2.4 Clear and Obvious Fraud 289
3.3 Restriction of the Fraud Exception 290
3.3.1 Fraud Made by a Third Party 290
3.3.2 Does Breach of Contract Constitute a Fraud？ 292
3.3.3 Does Soft Clause Constitute a Fraud？ 293
3.4 Fraud Exception v.Breach of Warranty 294
4 Uniform Customs and Practice for Documentary Credits 296
4.1 UCP and ICC Banking Commission 296
4.2 Background of UCP 600 299
4.3 Modification on Layout 299
5 Choice of Law Rule for Letters of Credit 302
5.1 UCP as Governing Law 302
5.2 Choice of Law Rule Under the Convention 302
5.3 Choice of Law Rule Under Revised UCC Article 5 303
5.4 Conflicting Between UCP and UCC 305
CHAPTER 7 GUARANTEES FOR INTERNATIONAL FINANCIAL TRANSACTION 307
1 Guarantee Under Common Law 310
1.1 What Is Guarantee？ 310
1.1.1 Guarantee May Be Conditional 310
1.1.2 Guarantees May Be Limited and Indirect 312
1.1.3 Guarantees May Be Documentary 312
1.1.4 Guarantee May Be Primary or Secondary 313
1.1.5 True Guarantee 313
1.1.6 Parent Company Guarantee and Downstream Guarantee 314
1.2 Discharge of Guarantor 315
1.2.1 Implied Release and Variation of Underlying Principle Contract 315
1.2.2 Release of Collateral or Discharge of any Co-Guarantor 316
1.2.3 Failure to Perfect a Security Interest 317
1.2.4 Invalidity of the Principal Obligation 318
1.2.5 Anti-Discharge by Indulgence Clauses 318
1.3 Bond and Indemnity 321
1.3.1 Guarantee v.Bond 321
1.3.2 Guarantee v.Indemnity 322
1.4 Suretyship and Guaranty 323
1.4.1 Suretyship Agreements 324
1.4.2 Primary Liability of Surety 325
1.4.3 Creditor’s Duty of Disclosure to Surety 327
1.4.4 Independent Legal Advice for Vulnerable Surety 328
1.4.5 Surety’s Defenses and “Impairment of Suretyship” Doctrine 330
1.4.6 Guaranty Agreements 332
1.5 Interpretation of Guarantee and Case of Marubeni 336
2 Demand Guarantees 339
2.1 Introduction 339
2.1.1 What is Demand Guarantee？ 339
2.1.2 Risk Distribution Function of Demand Guarantee 342
2.1.3 Payment Guarantee in Form of Demand Guarantee 343
2.1.4 Model Form of the Agreement on Demand Guarantee 344
2.2 Independence Principle and Fraud Exception 346
2.2.1 Independence Principle of Demand Guarantee 346
2.2.2 Rationales Behind the Independence Principle 347
2.2.3 Fraud Exception of the Independence Principle 348
2.3 New Exceptions to the Independence Principle 350
2.3.1 Unconscionability 350
2.3.2 Illegality 354
2.4 Parties and Governing Law of Demand Guarantees 356
2.4.1 Parties Involved in the Demand Guarantee 356
2.4.2 The Governing Law of Demand Guarantees 356
3 Performance Bond 357
3.1 Introduction 357
3.1.1 What Is Performance Bond？ 357
3.1.2 A Simple Hypothetical 359
3.2 Form of Performance Guarantee 360
3.3 Interpretation of Performance Bond 362
3.3.1 Performance Bond as Guarantee 362
3.3.2 Performance Bond Given by Noncommercial Entities Interpreted as Conditional Bond 364
3.3.3 Performance Guarantee as On-Demand Bond 364
3.4 The Edward Owen Case 366
3.4.1 Fact 366
3.4.2 Court’s Analysis and Decision 367
3.5 Performance Bond v.Letter of Credit 368
4 Standby Letter of Credit 369
4.1 What Is Standby Letter of Credit？ 369
4.2 The Main Uses of Standby Letters of Credit 371
4.3 International Rules for Standbys 372
4.4 Standbys v.Independent Guarantees 373
CHAPTER 8 LEGAL OPINION FOR INTERNATIONAL FINANCIAL TRANSACTION 376
1 Introduction of Legal Opinion 378
1.1 What Is Legal Opinion 379
1.1.1 Legal Opinion to the Client/Lender 380
1.1.2 Third-Party Legal Opinions 381
1.1.3 Opinion not as Form of Insurance 383
1.2 Purpose of Opinion 384
1.2.1 For Condition Precedent Requirement 384
1.2.2 For Due Diligence Review 385
1.2.3 For Closing of a Transaction 385
1.2.4 For Comfort to the Parties 385
1.2.5 For Efficiency 386
1.3 Assumptions 386
1.4 Facts and Law 387
1.5 Due Diligence for Legal Opinion 389
2 Form and Elements of Opinion 391
2.1 Recitation of Opinion 391
2.1.1 Description of Role of Counsel 392
2.1.2 Jurisdictional Limitations 392
2.1.3 Documents and Matters Examined 393
2.1.4 Specific Qualifications or Exclusions 393
2.2 Contents of Opinion 394
2.2.1 Due Incorporation and Qualification 394
2.2.2 Power and Authority 394
2.2.3 No Conflict 394
2.2.4 Binding Effect 395
2.2.5 No Litigation 395
2.2.6 Creation and Perfection of Security Interest 396
2.2.7 Mortgages 396
2.2.8 Governing Law 396
3 Liability of the Opining Lawyer 397
3.1 Contractual Liability 397
3.2 Liability to Third-Party Beneficiary 399
3.2.1 Intended Third-Party Beneficiary and Duty of Care 399
3.2.2 Fiduciary Duty to a Third-Party Beneficiary 401
3.3 Liability to Adverse Party 402
3.4 Liability in Tort of Negligence 403
3.4.1 Release of Privity for Negligent Misrepresentation Claim 405
3.4.2 Third Party’s Justifiable Reliance 408
3.5 Liability in Tort of Fraud 410
3.5.1 Fraud or Omitting Material Fact from Disclosure 410
3.5.2 False Information as Misrepresentations 414
3.5.3 Material Misstatements of Fact 414
3.6 Could Disclaimers Exempt Attorney from Professional Liabilities？ 417
4 Experiences Refined from Cases and Practice 417
4.1 Rules of Legal Opinions 417
4.2 How Legal Opinions Form and Work 419
4.3 How to Reduce Professional Liability 420
4.4 Sample of Legal Opinions 422