21 Risk Participation

Risk participation is similar to a funded participation discussed above but acts like a guarantee for the lender. The risk participant will not immediately place any deposit with the lender, but will agree to put the existing lender in funds in certain circumstances (typically on any payment default by the borrower).
The risk participant will charge the lender a fee for taking the risk of the borrower defaulting (bit like insurance but never say that !).
Like the case of a funded participation:
- the consent of the borrower is not required
- the risk participant has no direct contract against the borrower however the risk participant will ordinarily be granted a right of subrogation meaning it will be substituted for the lender and may pursue the borrower accordingly.