Loan Agreements

AuthorPoornimah Devi Sookun
Pages13-24
CHAPTER 2
Loan Agreements
If you repay me not on such a day … Be nominated for an equal pound
of your fair flesh, to be cut off and taken in what part of your body
pleaseth me.
William Shakespeare, The Merchant of Venice
Vulture funds are successful because courts enforce their right to collect the full value
of a debt as stipulated in the loan agreement. Nearly all the arguments used to justify
enforcement of the funds’ rights are found in the different clauses of the agreement
entered into when the loan is assigned from the primary lender to the vulture fund.
This chapter explains what a loan agreement is and outlines the main types of
agree
ment. It describes their basic structure, and summarises the main concepts and
clauses
of a typical loan agreement and some of the loopholes which allow vulture
funds to operate.
Finally, it stresses the importance of understanding what a loan agreement and its
clauses entail, and draws lessons from various cases and experiences.
2.1 What is a loan agreement?
A loan agreement is the written contract between a creditor and a borrower. It sets out
the rights and obligations of each party regarding a specified loan. The agreement
defines the following:
• the parties to the contract;
• the purpose for which the obligations of both parties are being drafted; and
• the terms and conditions on which the agreement is valid.
In a normal contract between two parties only the intentions of the parties involved
in the process are noted down in the agreement. However, in a loan agreement, the
concerns of other creditors may have a role in the agreement between one particular
creditor and the sovereign debtor.
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