7. Which of the following is NOT a Settlement Method for Bank Loans?

a) Assignment
b) Primary
c) DTC
d) Participation
e) Sub-Participation

Answer (Highlight area below to see answer)

c) DTC

DTC - Depository Trust Company - central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The DTC isa member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the New York Stock Exchange.

8. Of the Bank Loan Settlement methods, there are two that the Agent Bank may have no idea that the transaction took place. Which of the following are the two that the Agent Bank may have no idea about?

a) Assignment, Primary
b) Assignment, Participation
c) Participation, Sub-participation
d) Participation, Primary

Answer (Highlight area below to see answer)

c) Participation, Sub-participation

The Participation and Sub-participation are documents signed by the Buyer and Seller and in most instances; the agent does not know the transaction takes place. The agent notices and money will actually flow through the Seller to the Buyer. There are a few Credit Agreements that require notification to the agent bank when a participation takes place. **Compliance Note: Most CLO’s limit the number of participations within a fund and if they do a participation the bank they do the participation with has to meet a specific rating - thus we have ratings fields on the Institutions. **

9. If a fund purchases a loan in the Primary, they also use another word for that. Which term is used to indicate the initial group of lenders (Primary Lenders)?

a) Allocation
b) Syndicate
c) Secondary
d) None of the Above

Answer (Highlight area below to see answer)

b) Syndicate

The initial group of Lenders is the Syndicate. We call it Primary in WSO because it’s considered a Primary market. We suggest to WSO users that if they purchase something in the Primary, they should select Primary for their Settlement Method and often times change their Account Name to Assignment. In WSO, the Account Name defaults to the Settlement Method. Primary should never be used as a Settlement Method on a sale in WSO Administrator.

10. Once the Syndicate has closed, all other trades, Participations, Sub-participations and Assignments are considered trades in what market?

a) Primary market
b) Index market
c) Secondary market
d) Participation market

Answer (Highlight area below to see answer)

c) Secondary market

Any trade on Bank Loans after the initial Credit Agreement (Primary) is considered a Secondary Market trade. As in Answer #10, if the trade is done in the Primary but they don’t close the trade until the secondary market is usually why we have them change the Account Name to Assignment. If additional purchases are made, they will be under and assignment or participation and if the Account Name is not the same, the trades will not be added together.
** Compliance Note: Most CLO’s cannot purchase a loan in the Primary market - they may get into a deal and be a part of the original syndication group, but they cannot settle the loan in the primary because most CLO’s are off-shore entities and cannot sign Credit Agreements. They will get one of the Agent banks or another entity to fund their share of the commitment and then purchase it as soon as available in the Secondary Market.