I. Introduction to "Last-Out" Participations
A. Ordinary Participation vs. "Last-Out" Participation
1. A Participation is a hybrid arrangement comprised of an assignment of an interest in an intangible right, a contract that prescribes the duties between the lender and the participant, and a document that creates an agency.
2. A "last-out" participation subordinates the participant's right to loan proceeds to the prior payment of the lender's interest.
3. In many ways, the "last-out" participation is closer to an intercreditor/subordination arrangement than to a standard participation.
a) In a standard participation, the participant shares ratably with the lender.
b) Under a typical intercreditor/subordination agreement, the senior creditor is entitled to all proceeds (other than regularly scheduled payments) until its loan is paid in full, with the junior creditor subordinating its rights to payment and to enforce its security interests.
