CAM Exchange

Collateral Allocation Mechanism (CAM) Exchange

USA

Provisions in certain loan agreements that protect lenders and investors who lend in multiple currencies, different legal jurisdictions and with collateral and guaranty arrangements that vary between loan tranches, by equalizing the recovery for creditors when a borrower files for bankruptcy or its loans are accelerated upon an event of default. When the CAM exchange provision is activated on a bankruptcy filing or loan acceleration, the amount recovered for comparable debt holders (such as senior debt holders) is allocated equally to all comparable debt holders. This equalization is typically accomplished by:

• Non-US dollar denominated loans being converted to US dollar denominated loans.

• Comparable debt holders exchanging their original loans (either by an automatic deemed exchange of interests or by purchasing participations) for a proportionate interest in all of the pooled debt.

CAM exchange provisions are similar to intercreditor arrangements (intercreditor agreement). However, because creditors are equalized at bankruptcy or upon acceleration of the debt, there is less need for litigation between holders of various loan tranches who may otherwise have tried to increase their recovery if there were no CAM exchange provisions. While CAM exchange provisions equalize recoveries for comparable creditors, they do not increase the amount of money recovered from the borrower.

For more on CAM exchange provisions, see Practice Note, CAM Exchange Provisions (www.practicallaw.com/7-500-6036). For a collection of CAM exchange provisions in loan agreements, see What's Market: CAM Exchange Provisions (www.practicallaw.com/2-500-2007).