14 LOAN PRODUCT ARCHITECTURE

14.1 Commercial Loan Product Scope

The commercial loan business working group collectively decided to focus on designing one-way borrower-centric notifications for the phase 1 release of the standard. These notifications comprise most of the manual traffic that both agent banks and lenders must process on a daily basis.

The Commercial Loan Working Group extended FpML to cover:

In order to fully describe the notifications, it was necessary to design the following supporting object types, all of which are embedded within various notification types:

14.2 Overall Architecture

14.2.1 Commercial Loan Product Overview

14.2.1.1 Business Description

A "Credit Agreement" is a legal document which outlines the various financing options available to the "Borrower(s)" (referred to with the credit agreement). The financing terms are structured within the document using a set of well-defined products. Within the loan industry a single credit agreement is referred to as a "Deal".

Within a deal there are one or more "Facilities"; in effect, each facility is a distinct credit line with its own notional limit. Within the secondary loan markets these facilities are often referred to as "Tranches". In the FpML language, the business group preferred usage of the term, facility.

Each facility can be “Utilized” up its notional limit. Utilization occurs with one or more “Loan Contracts”. A loan contract is a single instance of an actual borrowing made and is the source for generating the interest-based cash flows. The sum of the current outstanding loan contracts is what was previously referred to as the “Utilization Level of the Facility”. The balance of the loan contracts could be either static, amortizing/increasing over time or fluctuating on an intra-day basis (depends on the type of facility and the type of loan contract).

Every credit agreement is managed by an "Agent Bank". The agent bank is responsible for ensuring correctness of all cash flow to and from the borrower. Commercial loans of this type are usually "Syndicated" to a group of "Lenders". The agent bank is also responsible for all lender cash flow.

14.2.1.2 Business Flow

The diagram below represents the high-level flow within the commercial loan product. The notices are used for communication of various business events by the agent bank to the lender community.

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Figure 1: Loan flow showing notice generation

14.2.1.3 Business Requirements

Refer to the Requirements Document for detailed information: LSTA Agent Bank Communications Requirements Document (PDF)

14.2.2 Architecture

The diagram below represents the high-level flow within the commercial loan product. The notices are used for communication of various business events by the agent bank to the lender community.

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Figure 2: Commercial loan object hierarchy

The Loan Contract Summary and Facility Commitment Position objects do not inherit from any existing FpML structure, since they do not fit into existing definitions of any of the base objects.

14.2.2.1 Deal Summary

The Deal Summary is a high-level representation of the credit agreement.

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Figure 3: Deal Summary (short-form)

14.2.2.2 Facility Summary

The Facility Summary is a high-level representation of a single facility within a Deal (credit agreement).

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Figure 4: Facility Summary (short-form)

14.2.2.3 Loan Contract Summary / Loan Contract

The Loan Contract has been defined in both short and long form. Not all aspects have been captured in Phase 1 but this definition will expand in Phase 2.

images/loan/LoanContractSummary.jpg

Figure 5: Loan Contract Summary (short-form)

Explanations:

  • Although there can be multiple borrower against the loan contract, only the main borrower is shown for the purposes of loan contract identification.
  • It is important to note that only the original amount of the loan contract is represented. This is the only value that remains constant and can be used for identification purposes.

This object reflects the full details of the loan contract (for phase 1). Embedded within the loan contract is the current interest rate period (see Figure 7: Interest Rate Period).

images/loan/LoanContract.jpg

Figure 6: Loan Contract (long-form)

Explanations:

  • The loan contract must exist within a given facility/deal.

The loan contract contains a "currentInterestRatePeriod". This describes the underlying base and margin rates currently applied to the loan contract. This is core to the definition of the loan contract.

images/loan/CurrentInterestRatePeriod.jpg

Figure 7: Interest Rate Period

14.2.2.4 Facility Commitment and Loan Contract Position

These objects are used to define the lender position at a given point in time.

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Figure 8: Facility Commitment and Loan Contract Position

14.2.2.5 Facility Notice Type

This is an abstract object type that defines all the fields which are common to facility-level notifications.

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Figure 9: Facility notice type base object

14.2.2.5.1 Repayment Notice

This template can be used for scheduled, unscheduled (mandatory and voluntary) notices.

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Figure 10: Repayment Notice

14.2.2.5.2 On-Going Fee Notice

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Figure 11: On-Going Fee Notice

The on-going fee notification is dependent on the underlying value of the fee margin as well as the position held by the lender throughout the fee period. The business required us to provide this information within the Fee Accrual Schedule object, as shown in Figure 12.

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Figure 12: Fee Accrual Schedule

14.2.2.5.3 One-Off Fee Notice

This notice represents the scenario where one-off payments are made by the borrower. These payments may be associated with a facility or a specific loan contract level – the fee type will determine the level.

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Figure 13: One-off Fee Notice

The optional loan contract summary provides a possible link for this cash flow to a specific loan contract..

14.2.2.6 Loan Contract Notice Type

These notices are actions which take place against a specific loan contract. The loan contract notice generic type contains either the loan contract summary or full definition of the loan contract.

images/loan/LoanContractNotice.jpg

Figure 14: Loan Contract Notice Type

14.2.2.6.1 Drawdown / Rate Set Notice

This is a notification which alerts the lender community of an upcoming loan contract. The notice covers only a (vanilla) funded loan.

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Figure 15: Drawdown / Rate Set Notice

14.2.2.6.2 Interest Payment Notice

These notices reflect the amount of interest due to a specific lender.

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Figure 16: Interest Payment Notice

It is important to highlight the Interest Accrual Schedule associated with each interest payment.

images/loan/InterestAccrualSchedule.jpg

Figure 17: Interest Accrual Schedule

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