Day 6: Law and Finance

DAY 6: Law and finance

DATE: March 11, 2024

MODERATOR: Ekanem Michael 

TIME: 6PM

SPEAKER: Mayowa Olagbaiye

Biography of the speaker

Mayowa Olagbaiye is an Associate at Banwo and Ighodalo with expertise in Banking, Finance, and M&A sectors, specializing in project finance, corporate finance, and debt restructuring. 

He offers strategic legal advice, manages risks, and handles transactions for international companies and financial institutions. 

His core competencies include; Corporate Finance, Project Finance, Syndicated Financing Arrangements, Contract Negotiation, Due Diligence and Legal Compliance, Legal Research and Document Drafting.

He provides commercially relevant advice on the structuring and negotiation of complex transactions and ensure that business operations comply with applicable laws.

BANKING AND FINANCE 

Banking and Finance allows the lawyers to work on debt transaction relating loans. It can either be on the lenders' sides or borrowers' sides. Such Lawyer advises parties on various transactions.

Banking - Regulatory aspect

Regulation of Banking in Nigeria: BOFIA is the principle regulation that regulates banking activities. We also have CBN Act, etc. CBN issues a circular that eventually becomes laws.

There are a lot of guidelines that help banks in Nigeria stay afloat. For instance 'liquidity ratio', etc.

Debt finance has to do with loan transactions and there are different classes. E.g: revolving loans (i.e a borrower has the ability to re-borrow from the loan they had paid off).

Corporate Finance means money is given to an institution based on its financial capacity or position.

Project Finance means lenders borrow money to an institution for the purpose of carrying out a project, and this loan is paid from the proceeds of the project.

Classification based on Purpose of the Loan

Acquisition Finance (leverage Finance): A loan gotten in order to facilitate a particular project.

Bridge Finance: a short term finance that a borrower would get typically to cover some expenses before embarking on the main project.

Re-Financing: re-financing a debt is basically taking loan to offset another loan that was previously taken. 

Classification based on Number of Lenders

• Bilateral Loans - Single lender and a single borrower.

• Syndicated Loan - Loan made by several lenders premised on the fact that larger facilities carry more risk for a single lender.

• Club Loan - Fewer lenders compared to syndicates who know themselves from the onset which eliminates the need to market their facility to wider banking community.

 

Classification based on Security

Secured Loans: the lender requires some collateral as condition for advancing the loan to the borrower. It gives the lender comfort.

Unsecured Loans: where borrowers have strong credit rating, then the lenders might not take security over the asset. These loans are mostly/typically for short term/period.

Note: Security might be provided by the borrower/obligor (e.g: guarantor/staff).

Assets that may be secured: Equipments, machines, plants, contracts receivable, etc.

Guarantees: a secondary undertaken taken by another entity usually affiliated with the borrower to further ensure security.

Why take Securities (lenders Perspective)?

Additional level of protection: Securing assets provides a level of protection to lenders in the event of borrowers default to pay. Lenders, therefore, enforce security to realize their outstanding debts.

Increases lender's Loan portfolio.

Why Give Security (Borrower's Perspective) 

Lower interest rates: Secured transactions have lower interest rates, when compared to unsecured loans.

Commercially convenient repayment timelines: Lenders are able to accommodate a longer repayment period because of the comfort offered by the security assets (longer repayment period).

Ways of Creating Security 

• Mortgages (legal & Equitable)
• You can create security over present assets and future assets. 
• A legal mortgage differs from an equitable mortgage (which is typically created by deposit of the document).
• Charges (fixed & floating)
• Assignment by way of Security
• Pledges: Only assets transferable by delivery of possession can be pledged.

Regulations relevant to secured lending

1. The Companies & Allied Matters Act, 2020 (CAMA).

2. Land Use Act (to the extent that it is a landed property).

3. Nigeria Export Procesing Zones Authority Regulations, 2004.

4. The Stamp Duties Act - FIRS must stamp the security documents.

5. Bank & Other Financial Institution Act (BOFIA).

Perfection Of Security (Secured Lending) 

1. Obtaining the Governor's consent (for land).

2. Stamping of security documents.

3. Registration with the Corporate Affairs Commission.

4. Registration on a concerned free zone registry (where applicable).

Documents used in securing loans

• Head of terms
• Letter of Intent 
• Term Sheets: Usually outlines the terms & conditions on which parties to a proposed financing are willing to proceed with the financing deal.

Conclusion

In conclusion, the field of Banking and Finance covers a diverse range of activities, from regulatory compliance to transactional structuring. Understanding the nuts and bolts of loan transactions, including classifications based on purpose, number of lenders, and security, is essential for legal professionals operating in this domain. Compliance with relevant regulations, effective security arrangements, and thorough documentation are crucial elements in ensuring the validity and enforceability of loan transactions. As you begin your exploration on Banking and Finance, a takeout from this would ease your journey in this Pantagruelian cosmopolitan milieu.