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Loan Subordination Agreement for Saudi Arabia

Loan Subordination Agreement Template for Saudi Arabia

A comprehensive legal document governed by Saudi Arabian law that establishes the priority and subordination arrangements between different classes of creditors in a lending structure. The agreement ensures compliance with both Saudi commercial regulations and Islamic finance principles, setting out the terms under which junior debt is subordinated to senior debt, including payment restrictions, enforcement rights, and creditor hierarchies. It addresses specific requirements of the Saudi legal framework while incorporating necessary Sharia-compliant provisions to maintain enforceability within the jurisdiction.

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What is a Loan Subordination Agreement?

The Loan Subordination Agreement is essential in structured financing arrangements within Saudi Arabia where multiple creditors exist at different levels of priority. This document is particularly crucial when establishing a clear hierarchy of debt in compliance with both Saudi commercial law and Islamic finance principles. It is commonly used in project financings, corporate restructurings, and complex lending arrangements where the rights of different creditors need to be clearly defined and enforced. The agreement details payment waterfall structures, restrictions on junior debt payments, and enforcement mechanisms, all while ensuring Sharia compliance. Key considerations include Saudi Arabia's Bankruptcy Law, Banking Control Law, and various SAMA regulations that govern lending practices and creditor rights.

What sections should be included in a Loan Subordination Agreement?

1. Parties: Identifies all parties to the agreement including the Senior Creditor(s), Subordinated Creditor(s), and the Debtor

2. Background: Explains the context of the existing loans and the purpose of the subordination arrangement

3. Definitions and Interpretation: Defines key terms used throughout the agreement and establishes interpretation principles

4. Subordination: Core section establishing the subordination of the junior debt to the senior debt

5. Sharia Compliance Declaration: Confirms the agreement's compliance with Islamic finance principles

6. Payments and Treatment of Subordinated Debt: Details how payments on the subordinated debt are restricted

7. Turnover of Proceeds: Procedures for handling any payments received in violation of the subordination

8. Restrictions on Subordinated Creditor: Limitations on the subordinated creditor's actions regarding their debt

9. Senior Creditor Rights: Outlines the rights and powers of the senior creditor

10. Representations and Warranties: Standard declarations by all parties about their capacity and authority

11. Undertakings: Ongoing commitments by the parties

12. Duration and Termination: Period of subordination and circumstances for termination

13. Governing Law and Jurisdiction: Specifies Saudi law as governing law and relevant courts

What sections are optional to include in a Loan Subordination Agreement?

1. Security Provisions: Include when the subordination relates to secured obligations

2. Permitted Payments: Include when certain payments to subordinated creditors are allowed under specific conditions

3. Additional Creditor Accession: Include when new creditors may join the arrangement in the future

4. Bankruptcy and Insolvency Provisions: Include detailed insolvency procedures when dealing with sophisticated parties

5. Inter-creditor Provisions: Include when multiple creditors exist at the same level

6. Assignment and Transfer: Include when parties want flexibility to transfer their rights

7. Costs and Expenses: Include when there's a need to specify who bears various costs

What schedules should be included in a Loan Subordination Agreement?

1. Schedule 1 - Existing Senior Debt: Details of all senior debt facilities including amounts and key terms

2. Schedule 2 - Existing Subordinated Debt: Details of all subordinated debt facilities including amounts and key terms

3. Schedule 3 - Form of Accession Deed: Standard form for new creditors to join the agreement

4. Schedule 4 - Payment Conditions: Detailed conditions under which payments to subordinated creditors may be permitted

5. Schedule 5 - Notice Details: Contact information for all parties for formal notices

6. Appendix A - Sharia Board Approval: Documentation of Sharia board review and approval

7. Appendix B - Corporate Authorizations: Copies of relevant corporate approvals and authorizations

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Saudi Arabia

Publisher

Ƶ

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use
Relevant legal definitions










































Clauses
































Relevant Industries

Banking & Financial Services

Real Estate & Construction

Manufacturing & Industrial

Energy & Resources

Infrastructure

Healthcare

Retail & Consumer

Technology & Communications

Transport & Logistics

Islamic Finance

Relevant Teams

Legal

Finance

Treasury

Risk Management

Compliance

Corporate Finance

Credit

Islamic Finance

Transaction Management

Investment

Relevant Roles

Chief Financial Officer

Finance Director

Legal Counsel

Sharia Compliance Officer

Treasury Manager

Credit Risk Manager

Corporate Finance Manager

Investment Director

Restructuring Officer

Banking Relationship Manager

Financial Controller

Legal Director

Debt Finance Manager

Transaction Manager

Industries








Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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