Can you insure your way out of weak docs?

Credit insurance can reduce a lender's exposure to a borrower. It also introduces another contract whose requirements have to be managed alongside the loan.

That was the documentation question I wanted to explore with Angela Chang and Jamie Stork of Texel Asia. Our Knowledge Series conversation followed a Covenant Exchange roundtable in Singapore, where Angela's description of credit insurance had prompted rather a lot of questions from me.

Angela described the product as a "secret sauce" banks have used for years to manage exposures and support bigger commitments. For private credit lenders, the potential uses include managing concentration and sharing selected risks while maintaining the borrower relationship.

The question is what the lender has to do once that risk has been shared.

Jamie explained that insurers assess the lender as well as the borrower. They want to understand its origination, diligence, investment decisions, and ongoing credit management. The lender's process is part of what the insurer relies on when agreeing to provide cover.

Angela described the corresponding principle as acting as a prudent uninsured lender. The lender should take the same care over diligence, documentation, and recoveries as if the insurance weren't there.

That principle becomes particularly relevant when a borrower asks for a concession.

An extension of maturity, a deferral of payments, or a change to the security package may alter the risk the insurer agreed to take. Jamie explained that material changes need to be considered under the policy, with consultation or consent requirements depending on its terms.

A lender therefore has two sets of provisions to consider when evaluating an amendment: the financing documents governing the proposed change and the insurance policy governing its protection.

Jamie described non-payment cover by reference to contractually due and enforceable debt, subject to policy conditions and exclusions. He also identified weak protections and poor recovery prospects as factors that can limit insurance appetite. Insurance doesn't rewrite the covenants or improve the security package.

The broker's involvement can become more active before a payment default. Angela described early signs of stress as a "wobble": a covenant breach, late reporting, liquidity pressure, or a waiver request. The broker can help coordinate information, notifications, and any necessary insurer consents.

That involvement may continue through restructuring, a claim, and subsequent recoveries. Angela explained that payment of a claim doesn't necessarily end the relationship: the parties still need to address recovery proceeds and costs.

For an insured lender considering a concession, the practical question extends beyond whether it can approve the borrower's request. It also needs to establish what its policy requires before it does so.

The questions for your own book:

1. Which changes to maturity, payment dates, or security require insurer consent under your policy, and how do those requirements compare with the loan's amendment provisions?

2. What events trigger notification obligations under your policy, and what deadlines apply before and after a payment default?

3. How do the policy provisions on subrogation, recoveries, and enforcement costs interact with the financing documents and any ICA?

Listen to the full conversation on Spotify and Apple Podcasts.