Acing loan agency: What to look for in an administrative loan agent

Private debt has encountered explosive growth as an asset class in recent years. The industry started out 2024 with $1.5 trillion in assets under management, up from $1 trillion in 2022, according to Morgan Stanley. 

As direct lenders and broadly syndicated loan managers seek to grow their funds and returns alongside this industry growth and investor demand, the burden of their fund operations can begin to have an effect on their success. 

This is especially the case with loan agency operations, known for their intense level of work across complex credit investments at high quantities.  

Under these industry conditions, using a loan agent becomes much more appealing for many managers, and firms who already depend on a third-party loan agent may look to increase their outsourcing or select a new provider that more closely meets their needs. 

To understand more about loan agency and how a good loan agent operates, read on. 

What is a loan agent?

In the credit and private debt space, a loan agent is the party that facilitates all ongoing operations required to adhere to the loan terms and liaises between the lenders and counterparties to do so. Tasks that are central to loan agency include: 

• Calculating a loan’s interest over time 

• Coordinating loan and interest payments between multiple lenders and counterparties 

• Sending loan communications between lenders and counterparties 

• Engaging outside parties like lawyers or fund administrators to move along loan operations 

There are a few different kinds of loan agents depending on a lender’s needs or depending on the nature of the loan: 

Administrative agent 

A lead administrative agent, or a named agent, fully represents the lender on the loan and is named in documents as the administrative agent. By taking this lead administrative agent role, the partner takes over all loan agent responsibilities from the lender. 

Sub agent  

The sub agent role exists for lenders who want to take the lead role in the loan agency process and be listed as the lead agent on their own deals. For the behind-the-scenes responsibilities that they hope to outsource, they would work with a sub agent who is not named on the loan but handles elements such as payment distribution and managing interest rates. 

Successor agent 

A successor agent steps in on deals where an administrative agent resigns or is removed. Under proceedings such as bankruptcies, it can disrupt the orderly administration of a credit facility. A successor agent serves as a neutral party to make sure each entity in the capital structure is served their fair share from the fallen deal. At Alter Domus, we’ve served as a successor agent on high-profile deals such as the Lord & Taylor bankruptcy proceedings. 

What to look for in a loan agent

While lenders can insource loan agency responsibilities, many choose to outsource some or all of this imperative, labor-intensive fund operation. By outsourcing these responsibilities to a loan agent, lenders benefit from tighter headcount in their operational teams and the close attention and expertise of teams specifically focused on all aspects of the loan agency process. 

But not all loan agents are created equal. Loan agency involves painstaking and bespoke work to carry out the terms of a loan over the multiple years of its life. When evaluating partners to serve as a loan agent, here are some key elements to help decide if they’re up for the task:

1. A balance of bespoke expertise and ability to scale operations 

As the direct lending and BSL spaces grow and managers hone their strategies along with that growth, more complex loan terms and transactions emerge. It’s encouraging to see our industry mature in this way, but it does make for more complex fund operations, particularly on the loan agency side.  

For a loan agent to work effectively, they need to have direct and deep expertise in these bespoke strategies and debt vehicles. At Alter Domus, we pride ourselves in operating at the intersection of bespoke expertise and high volume. Our servicing teams are segmented out by asset class expertise and work cohesively for an end-to-end approach, as opposed to the siloed operations of our competitors. We have the experience and the team size to achieve the balance needed for fickle loan agency challenges. 

2. Technology-enabled service 

Loan agency services may take plenty of time, attention, and expertise from your provider, but it’s also crucial that your provider has capable technology underpinning their loan agent duties. When a provider relies too much on manual processes in administering loan agency, their lender client absorbs the high risk of error.  

At Alter Domus our loan agency teams rely on our proprietary software platform Agency360 to service our direct lender and BSL clients. There are key benefits to relying on a proprietary tool for these needs. For example, we control the updates and maintenance of the tool ourselves rather than relying on software from a third party. We also avoid having to pass along rising fees from a third-party platform. 

A reliance on powerful technology should also extend to the client experience. When outsourcing loan agency operations, lenders should still have a view into the service they’re receiving and a 24/7 ability to access their loan data and reporting. A third-party loan agent should offer a tech-enabled and convenient way to check in on their operations and download relevant reporting. 

At Alter Domus, we offer Agency CorPro as a home base for our clients. The proprietary portal platform serves as our purpose-built solution to exchange sensitive asset information and important loan documentation between our teams. That means our work is available to you at all times in a self-service fashion. 

3. Breadth of loan agency and other middle and back-office service capabilities 

An ideal loan agent should offer additional services throughout the loan lifecycle to support your operations. By placing multiple outsourced needs with the same firm, your teams can benefit from a more holistic data and technology experience. 

At Alter Domus, we’re private debt and BSL experts, and cover the full range of credit middle office services for these asset classes, from loan servicing to fund administration to borrowing base administration. We know that every operational model is different at each firm, and we are able to customize our services and delivery model to any setup your firm prefers, including outsourcing, co-sourcing and managed service models. 

Optimize your loan agency operations with Alter Domus Agency Services 

As a top provider in the market, Alter Domus’ Agency Services offering meets all these needs and more. Our servicing teams are trained specifically in bespoke credit vehicles and are large and experienced enough to handle high volumes of loans. In fact, our peak seasons see us processing more than 100,000 payments in a single day. 

Ready to see what Alter Domus can do for your loan agency needs and beyond? Learn more about Alter Domus’ Agency Services here. To speak with our Agency Services team about how our services can help your middle- and back-office operations, contact us here.