## 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:

- Commercial Loan Notifications between Agent Bank and Lenders, including:
  - Facility Level Notifications
    - Scheduled Principal Repayment Notice
    - Unscheduled Mandatory and Voluntary Principal Repayment Notice
    - On-Going Fee Notice
    - One-Off Fee Notice
    - Letter of Credit Balance Notice
    - Letter of Credit Cancellation Notice
    - Letter of Credit Issuance Notice
    - Rollover Notice
  - Loan Contract Level Notifications
    - Drawdown Notice
    - Rate Set Notice
    - Interest Payment Notice
    - One-Off Fee Notice

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:

- "Short-form" Product Definitions. These are summary objects which, in the future, will form the foundation for defining the 'long-form' loan product:
  - Deal Summary
  - Facility Summary
- Loan Contract Definitions. These objects describe the value of outstanding loan contracts at a given point in time. The outstanding loan balance fluctuates over the life of a facility. There are two variations designed: the short-form summary and the long-form version of the loan contract:
  - Loan Contract Summary
  - Loan Contract
- Lender Position Definitions. These objects describe the amount of a facility and loan contract that a single lender owns at a given point in time:
  - Facility Commitment Position
  - Loan Contract Position
- Letter of Credit Definitions. These objects describe L/C contract at a given point in time:
  - Letter of Credit Identifier
  - Letter of Credit
- Letter of Credit Position Definitions. This object describes L/C contract at a given point in time:
  - Letter of Credit Position

### 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.

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.

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.

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).

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 but this definition will expand in Phase II.

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).

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.

Figure 7: Interest Rate Period

##### 14.2.2.4 Letter of Credit

This object reflects the full details of the Letter of Credit contract (for phase II).

A core structure, describing a Letter of Credit. L/C is an agreement by issuing bank to a beneficiary (usually someone who does business with the borrower) to provide funding to beneficiary in the event when the borrower fails to make a payment to the beneficiary, in their normal course of business.

In the event that the borrower fails to make a payment to the beneficiary, the beneficiary can immediately request funds from the issuing bank, and the issuing bank must then be reimbursed by either the borrower or the lenders. If the lenders fund, then the LC is effectively transformed into a loan contract.

Figure 8: Letter of Credit

##### 14.2.2.4.1 Letter of Credit Identifier

A basic set of fields to identify an LC. Please note that the partyReference within the contract identifier should refer to the Issuing Bank.

Figure 9: Letter of Credit Identifier

##### 14.2.2.5 Facility Commitment and Loan Contract Position

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

Figure 10: Facility Commitment, Loan Contract Position and Letter Of Credit Position

##### 14.2.2.6 Facility Notice Type

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

Figure 11: Facility notice type base object

##### 14.2.2.6.1 Repayment Notice

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

Figure 12: Repayment Notice

##### 14.2.2.6.2 On-Going Fee Notice

Figure 13: 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 14.

Figure 14: Fee Accrual Schedule

##### 14.2.2.6.3 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.

Figure 15: One-off Fee Notice

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

##### 14.2.2.6.4 L/C Balance Notice

This notice represents the scenario where the issuing bank communicates the updated L/C balance to the beneficiary. Throughout the life of a letter of credit, it is possible for the borrower to either increase or decrease the notional value of the L/C. These balance changes are subject to the rules stated on the credit agreement. Two main scenarios exist:

- The balance of the L/C can shift on request from the borrower due to a change in the financing requirement between the borrower and the beneficiary of the L/C.
- The L/C balance of the L/C can shift based on the fact that there has been a failure to pay on the part of the borrower to the beneficiary.

Figure 16: L/C Balance Notice

##### 14.2.2.6.5 L/C Cancellation Notice

This notice represents the scenarios when agent bank is notifying lenders that L/C’s is being canceled. A specific cancellation date must be communicated to ensure correct booking on the part of the lender.

Figure 17: L/C Cancellation Notice

##### 14.2.2.6.6 L/C Issuance Notice

This notice represents the scenario where the agent bank is communicating the fact of issuing L/C by the issuing bank to the lenders.

Figure 18: L/C Issuance Notice

##### 14.2.2.6.7 L/C RolloverNotice

This notice represents the scenario where agent bank is communicating the event of rollover to the lenders. Loans are usually based on an underlying rate (typically LIBOR). These quoted rates are usually of shorter tenor than the facility within which a particular loan is contained (e.g. 3 month LIBOR). These shorter tenor loans must undergo a rate reset process, which allows the lender to re-establish the underlying rate associated with the loan. This process is termed a ‘rollover’ within the syndicated loan market. During a rollover, it is possible that the borrower may:

- Repay principal.
- Pay interest.
- Combine or split multiple outstanding loans into a different borrowing configuration.

Figure 19: Rollover Notice

##### 14.2.2.7 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.

Figure 20: Loan Contract Notice Type

##### 14.2.2.7.1 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.

Figure 21: Drawdown / Rate Set Notice

##### 14.2.2.7.2 Interest Payment Notice

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

Figure 22: Interest Payment Notice

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

Figure 23: Interest Accrual Schedule

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