A funding arrangement between a creditor under a Facility Agreement and a third party (the participant). The participant places funds with the creditor on terms that those funds will only be repaid, and interest will only be paid, when corresponding amounts of Principal or interest are received by the creditor under the Facility Agreement. A participant merely has a contractual right to receive funds from the creditor and does not have a beneficial interest in the Facility Agreement. Accordingly, a participant takes credit risk both on the debtor and the creditor. A participant under a funded participation has no direct rights against the debtor. A funded participation is not usually suitable where the Facility being participated is a Revolving Facility.
If certain conditions are satisfied, a funded participation will allow a creditor which is subject to UK accounting principles and is regulated by the Financial Services Authority to obtain Off Balance Sheet treatment for the participated Facility (but not for undrawn Commitments).