Growing Interest In Utilising Equity Commitment Letters In The Context Of Sponsor Margin Loans

Equity Commitment Letters (ECL) are legal documents pursuant to which one party (typically the main fund or multiple funds managed by the sponsor) (the ECL Provider) commits to providing a certain amount of capital, usually cash, to another party (typically the borrower or borrowers owning the shares that back an underlying loan agreement) (the ECL Receiver) if certain triggers occur.

• Over the past few months, we have observed a growing interest in utilization of ECLs from both lenders and borrowers.
• This interest stems from the additional credit support ECLs provide to borrowers for the benefit of lenders, while addressing various structural issues such as tax and regulatory concerns.