Loan Participation Note (LPN)

A Loan Participation Note (LPN) is a debt security, as one of the possible structures for issuing Eurobonds it allows investors to acquire shares in a loan or loan portfolio issued to a borrower. The loan is provided by the issuer of the notes - a specially created company (SPV, Special Purpose Vehicle). Unlike credit notes, an LPN credit event or default is tied to that particular loan, and not to the borrower’s credit events. LPN holders participate on a pro rata basis in receiving interest and principal payments on the loan. In Russian practice, as a rule, all eurobonds issued by corporate and municipal issuers, assume an LPN structure.

A series of LPN notes is often issued within the framework of the Medium-Term Notes program (MTN), which allows for the reduction of associated costs. There is one basic prospectus of the program written, and for each tranche Final Terms are issued - small issue documents containing the main parameters of the issue.

International investment banks sign loan participation agreements with local banks and also offer them LPN as a short-term investment option, thereby meeting the needs of local borrowers and increasing local banks’ loan income when one or more banks are lenders to the borrower.