Post by nick on Nov 25, 2016 8:33:39 GMT
Loan is to APF and APF is in turn making a loan to underlying borrower. Its up to APF to claim on security if underlying borrower defaults, but APF will still be expected to continue payments of the loan to AB.
If APF defaults, then AB claim on the assigned security, independent of whether or not the underlying borrower defaults, otherwise there is no point assigning security if you can't use it when needed
If AB don't have step in rights to continue the loan (I am not sure in this case), then AB may come to an agreement in some way for the underlying borrower to pay off APF loan to AB and chase up APF themselves. But the risk lies with the underlying borrower as they have agreed to the assignment of the security when taking out the loan with APF.
Surely the assignment of security to AB is only effective if AB have step in rights in the event of APF defaulting. Otherwise if the underlying borrower continues to honour its repayment obligations to APF the second charge cannot be exercised/crystallised irrespective of who has the security interest and AB is left with the problem of extracting repayment from APF who might be liquidation/administration. Maybe the assignment of security interest explicitly implies step in rights otherwise it would appear to have limited value (as you have pointed out). It is this securing of payments from the underlying borrower via APF in the event of a APF default which I'm still struggling to get comfort with. Perhaps ablrate can provide some clarity.