lsta assignment and assumption agreement

Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

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by   Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

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Updated on: November 24, 2023 · 3min read

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

• The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
• The assignor must agree to assign their rights and duties under the contract to the assignee.
• The assignee must agree to accept, or "assume," those contractual rights and duties.
• The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

• First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
• All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
• Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

• Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
• The effective date of the assignment and assumption agreement
• Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
• Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
• Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
• A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

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Assignments and Participations

11.1 distinguishing assignments and participations.

Credit agreements typically regulate both assignments and participations. Understanding the legal distinction between the two is important.

Assignments create direct contractual rights between the borrower and the assignee. In a typical assignment, the assignor transfers its rights and obligations (except to the extent explicitly retained) to the assignee. The bundle of transferred rights in a typical assignment include of course the right to payment but also any rights of enforcement. As a result, if the borrower defaults in payment of the loan, the assignee can sue the borrower directly and does not have to join in the suit with the assignor lender ...

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Appendix 4 LSTA Assignment and Assumption

• Published: December 2007
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Ignite Success with an Effective Assignment and Assumption Agreement: A Comprehensive Guide

LegalGPS : July 27, 2023 at 8:01 AM

Running a successful business is all about staying on top of your game—and that includes being able to navigate legally complex situations with ease. One concept that often comes up in the world of contracts is the assignment and assumption agreement. If you're a business owner who needs a quick yet comprehensive rundown of what an assignment and assumption agreement is and how to create one, you've come to the right place.

In this guide, we'll walk you through the ins and outs of assignment and assumption agreements, and even provide you with a step-by-step explanation of how to put one together. So grab your favorite cup of coffee and let's get started!

Being able to efficiently manage and transfer contractual rights and obligations is crucial for businesses of all sizes. Whether you're selling a portion of your company or entering into a new partnership, having a solid assignment and assumption agreement in place can save you time, resources, and potential legal headaches down the line.

That being said, it's important to ensure that your assignment and assumption agreement is accurate, comprehensive, and tailored to suit your specific needs. And that's where this guide comes in. We'll help you understand the role of assignment and assumption agreements in your business and give you the tools you need to create one with confidence.

What is an Assignment and Assumption Agreement?

Before we dive into the nitty-gritty of creating an assignment and assumption agreement, it's important to understand what it is and why it's important for your business. In simple terms, an assignment and assumption agreement is a legal document that transfers the rights and obligations of one party (the "assignor") in an existing contract to another party (the "assignee"). Essentially, it allows one party to step out of a contract and another party to step in, taking over the original party's rights and responsibilities.

An assignment and assumption agreement typically serves a few key purposes, including:

Transferring ownership or control of assets

Refinancing debt or other financial arrangements

Splitting or consolidating business entities

A well-crafted agreement not only helps ensure a smooth transition but also protects all parties involved from potential misunderstandings and disputes.

The Importance of an Accurate Assignment and Assumption Agreement

Now that you have an idea of what an assignment and assumption agreement entails, let's talk about why it's so important to get it right. Without a solid agreement in place, both the assignor and the assignee can face a whole host of problems, from miscommunications to legal disputes.

For one, an unclear or vague agreement can leave both parties open to misinterpretation and misunderstanding, which can result in disputes down the line. This is especially true when considerable assets or financial interests are at stake—having an accurate agreement in place helps protect both parties from future legal battles.

Moreover, without an agreement that specifically assigns rights and obligations to the assignee, the original parties to the contract may still be bound by its terms. This can give rise to unwanted legal complications and may even defeat the purpose of entering into the assignment and assumption agreement in the first place.

In short, a well-written assignment and assumption agreement protects both parties and helps prevent future misunderstandings and disputes.

How to Write an Assignment and Assumption Agreement: Step-by-Step Guide

Now that we've covered why having an accurate assignment and assumption agreement is so crucial, let's walk through how to write one. Keep in mind that every contract is unique, so your agreement should be tailored to your specific situation.

Step 1: Identifying Parties and their Roles

The first step in creating an assignment and assumption agreement is to clearly identify the parties involved and their respective roles. This typically includes the assignor, assignee, and the original counterparty to the contract (the "obligor"). Be sure to include the legal names and contact information for each party, including any business entities, individuals, or other parties that may be involved.

Moreover, all parties should be represented by a lawyer who is licensed to practice law in the state where the property is located.

Step 2: Describing the Original Contract

The next step is to describe the original contract being assigned and assumed, also known as the "underlying contract." This should include a brief description of the terms and conditions of the underlying contract, as well as the date on which it was executed. You may also want to include a reference to the specific section(s) of the underlying contract that permit assignment, if applicable.

For example, if the underlying contract is a lease agreement, you may want to point out that the lease allows for assignment.

Step 3: Detailing the Assignment and Assumption

Now, it's time to get into the heart of the agreement—the actual assignment and assumption. In this section, you'll need to outline the specific rights and obligations being transferred from the assignor to the assignee, including any limitations or conditions related to the transfer.

You should also identify the effective date of the assignment and assumption, which may be the date on which the agreement is executed, or a later date specified by the parties. In some cases, you may also need to consider any rights or obligations that will remain with the assignor after the assignment and assumption take effect.

Step 4: Consent of the Obligor

In some cases, the assignment and assumption of a contract may require the consent of the obligor. If this is the case, you should include a section in your agreement describing the obligor's consent, including any conditions or limitations on the consent, if applicable.

This is important because if the obligor does not consent or if there are conditions on the consent, it may prevent your assignment and assumption from taking effect.

Step 5: Governing Law and Jurisdiction

It's crucial to establish which laws will govern your assignment and assumption agreement, in case any disputes arise later on. Include a section specifying the state or country whose laws will apply to the agreement, as well as the jurisdiction where any legal disputes will be resolved.

However, make sure the law you choose is not one that would be considered unfair to either party. For example, if one of your companies is based in a state that has laws favorable to creditors and the other company is based in a state with more favorable laws for debtors, it may be best to choose another state as your governing law.

Step 6: Signatures

Finally, the last step in creating an assignment and assumption agreement is to have all parties sign and date the document. This is typically done at the end of the agreement, after all terms and conditions have been outlined. Be sure to include lines for the signatures of the assignor, assignee, and the obligor (if their consent is required), as well as a space for each party to print their name and title, if applicable.

Pros and Cons of Using an Assignment and Assumption Agreement Template

When it comes to creating an assignment and assumption agreement, you might be considering using a contract template. While templates definitely have their advantages, such as saving time and ensuring that you cover all of the necessary legal bases, there are also some potential downsides to be aware of.

One major advantage of using a template is that it can save you time by providing a well-structured starting point for your agreement. Templates also generally include the essential sections and clauses that most agreements need, helping to ensure that your agreement is legally compliant and thorough.

The main disadvantage of using a generic template is that it may not be tailored precisely to your specific needs. This can result in an agreement that doesn't fully address the nuances of your situation or provide adequate protection for all parties involved. If you're unsure about whether a template is appropriate for your situation, you should consider consulting a legal professional or purchasing a customizable contract template that can be adapted to your specific circumstances.

The Benefits of Choosing Our Contract Template

There's no doubt that a well-designed contract template can be a game-changer when it comes to drafting assignment and assumption agreements. And that's where our expertly crafted template comes into play. Here's what sets our template apart:

Designed by legal professionals with years of experience

Simplified language for easier understanding

Customizable to suit your specific needs and requirements

By choosing our contract template, you can feel confident knowing that you're getting a legally compliant and strategically sound agreement that's tailored to your situation. So why wait? Purchase our expertly designed assignment and assumption agreement template and ensure your business's success today!

In the world of business, contracts play a crucial role in protecting your assets and interests. And when it comes to assignment and assumption agreements, accuracy and clarity are key. We hope this comprehensive guide has given you the tools and understanding you need to confidently create your own assignment and assumption agreements.

Ready to make your life easier? Grab our expertly designed assignment and assumption agreement template today and streamline your business operations with confidence!

Assignment and Assumption Agreement | Practical Law

Assignment and Assumption Agreement

Practical law standard document 0-381-9984  (approx. 10 pages).

• Practical Law

LSTA 2014 Publications Explained: Revised MCAPs, Cashless Rolls and Fronting Letters

Practical law article 0-578-2105  (approx. 11 pages).

• The treatment of disqualified institutions.
• Affiliate and borrower buybacks .
• Amend-and-extend transactions.
• Cashless rolls.

Disqualified Institutions

• That entity is, or is affiliated with, a competitor that by becoming a lender would gain access to confidential and other sensitive information of the borrower.
• The borrower or sponsor otherwise desires to “blacklist” that entity (such as a distressed investor with which the borrower or sponsor has previously had a negative experience).

Defining Disqualified Institution

Consequences of being a disqualified institution.

• The Disqualified Institution’s revolving commitments may be terminated.
• The Disqualified Institution’s loans may be repurchased by the borrower at the lowest of par, the price paid by the Disqualified Institution for the assignment [or market price].
• The borrower may force the Disqualified Institution to assign its loans at such lowest price to a third party.
• Will not be permitted to receive lender-only information.
• Will not be permitted to attend lender-only meetings.
• Will effectively have its vote on amendments, waivers or modifications of, or other actions taken under, the credit facility, excluded both prior to and following a bankruptcy proceeding of the borrower.

Waiver of Agent Responsibility and Other Matters

• Practice Note, Assignments and Participations of Loans
• Standard Clauses, Loan Agreement: Assignment and Participation Clauses
• Standard Document, Assignment and Assumption: Single Assignment of Loans
• Standard Document, Assignment and Assumption: Multiple Assignments of Loans

Affiliate and Borrower Buybacks

Defining affiliated lender, rules applying to affiliated lender buybacks.

• Identifying itself as a Non-Debt Fund Affiliate.
• Limiting the aggregate principal amount of term loans held by such Non-Debt Fund Affiliate to a specified percentage to be determined by the contracting parties (typically around 25%, and small enough to avoid constituting a blocking position for any class of debt in a bankruptcy proceeding of the borrower).
• Will effectively have its vote excluded on amendments, waivers or modifications of, or other actions taken under, the credit facility, except for matters requiring a 100% or all affected-lender vote that adversely affects the Non-Debt Fund Affiliate more than other term lenders.
• Will effectively have its vote excluded with respect to a plan of reorganization of the borrower, except to the extent that the plan adversely affects the Non-Debt Fund Affiliate more than other term lenders.

Rules Applying to Borrower Buybacks

Amend-and-extend transactions.

• Are subject to customary maturity and weighted average life limitations.
• Rank pari passu with the existing term loans.
• Must receive no better than pro rata treatment in connection with prepayments.

Other 2014 MCAPs Changes

• In the 2012 MCAPs, fronting exposure (of swingline lenders and letter of credit issuers) was only reallocated from defaulting lenders to non-defaulting lenders if no default existed and all representations were true at the time of the reallocation. Following a review of market precedents and consultation with LSTA members, the 2014 MCAPs were revised to effect such reallocation subject only to the exposure of any non-defaulting lender not exceeding its commitments.
• The prohibition on assignments to natural persons was expanded to include “holding company, investment vehicle or trusts for, or owned and operated for the primary benefit of, a natural person”.
• The yank-a-bank provision was revised to require majority approval of an affected class of loans before a member of that class could be forcibly replaced with another entity, in recognition of the multiple tranches that often exist in modern credit agreements.

Cashless Rolls

• An exchange of loans under an existing facility for new loans under the repriced facility.
• A continuation of the existing loans as repriced loans.
• It provides that the exchange offer is made by the borrower (not the administrative agent bank) to the existing lenders.
• The administrative agent bank retains the right to allocate the new loans to existing lenders in its discretion.
• The borrower and lenders agree to a limitation on the liability of the administrative agent bank for its role in effecting the cashless roll exchange.

Fronting Letter

Going forward.

• United States