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United Kingdom
United Kingdom
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Fronting bank meaning
Published by a LexisNexis Banking & Finance expert
What does Fronting bank mean?
In a syndicated loan, the fronting bank is the participating lender that, as issuing bank, issues letters of credit or bank guarantees at the borrower’s request for the account of all lenders. It is the named issuer and directly liable to the beneficiary, but the facility agreement provides that the other lenders share the risk: each must reimburse and indemnify the fronting bank for its pro rata share of any payment or liability. The borrower must reimburse the fronting bank (often with a right for the fronting bank to take cash collateral).
This is a market/contractual term (commonly used in LMA-based documentation), not one defined by legislation or case law. Typical provisions address fronting exposure caps, allocations and reallocation if a lender is a defaulting lender, and payment of an LC/guarantee commission to all lenders plus a fronting fee to the fronting bank.
Usage and legal effect are broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, subject to local law requirements for issuing letters of credit and demand guarantees. The term is sometimes used interchangeably with issuing bank, but “fronting bank” emphasises that the bank fronts third‑party credit on behalf of the syndicate.
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View the related Practice Notes about Fronting bank
PRACTICE NOTES
UK Banking, Finance, Capital Markets, Derivatives and Insolvency Law Glossary including Islamic finance
Banking & Finance glossary A Auditing and Accounting Organisation for Islamic Financial Institutions (AAOIFI) The foremost Islamic, international, autonomous, independent, not-for-profit corporate body that develops and issues accounting, auditing, governance, ethics and Shari’ah benchmarks and standards for Islamic Financial Institutions (IFIs) and the wider Islamic finance sector. Founded in Bahrain in 1991, it is backed by a number of institutional members across more than 45 countries, including central banks and regulatory authorities, financial institutions, accounting and auditing practices, and legal firms. Its pronouncements are currently applied by leading Islamic financial institutions across the world and have advanced a progressive and gradual harmonisation of global Islamic finance practice. It also delivers professional qualification programmes—notably Certified Islamic Professional Accountant (CIPA), Certified Shari’ah Adviser and Auditor (CSAA), and the corporate compliance programme—in efforts to strengthen the industry’s human capital and governance frameworks. For further details, see Practice Note: Key participants in the Islamic finance industry—Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Acceleration Acceleration is the formal action...
22 May
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