The Lyparis Back to Back Loan will comply with the provisions of the Intercreditor Agreement on Structural Repayment Return Loans. If two companies from different countries have to access money in each other`s currency to balance an invoice or to trade in the foreign exchange market, a back-to-back loan is used. Because of the difference in the value of currencies, companies will take this type of loan as a hedge against currency risks. When an entity borrows in another currency for payment purposes, it can also minimize the costs it would have accumulated if it had paid in its own currency. A back-to-back loan is a loan agreement between companies in two countries where currencies remain separate, but maturities are set. The gross interest rates on the loan are also separated and are set on the basis of the commercial interest rates set at the time the contract is signed.  Most return loans are due within 10 years because of their inherent risks. The greatest risk of such agreements is asymmetric liability, unless it is expressly covered in the back-to-back loan contract. This liability occurs when one party is late in the loan and the other party is still responsible for the repayment.
There are a number of risks that are due to back-to-back loans. The most important risk is that the two currencies in this type of loan tend to be uneven in terms of the loss due to them. This is called asymmetric liability, except in cases where asymmetric liability is provided or covered, which is clearly indicated in the back-to-back loan agreement. Another example would be the financing of Canadian companies through a German bank. The company is concerned about the value of the Canadian dollar, which is changing against the euro. As a result, the company and the bank create a return credit at the cash register, with the company paying one million cad to the bank and the bank (which uses the deposit as collateral) giving it $1 million based on the current exchange rate. With back-back loans, two parties, each in another country, lend each other money to hedge against foreign exchange risks. They are also called “parallel loans.” The company and the bank agree on a one-year loan term and an interest rate of 4%. At the end of the loan period, the entity repays the loan at the fixed rate agreed at the beginning of the loan period and thus insures the foreign exchange risk during the term of the loan. A back-to-back loan, also called parallel loans, is when two companies from different countries borrow offsetting amounts in each other`s currency as hedge against foreign exchange risks. While currencies remain and interest rates (based on the trading prices of each territorial scheme) remain separate, each loan has the same maturity date. The risk of default is therefore a problem, as the inability of one party to repay the loan in a timely manner does not release the other party`s obligations.
As a general rule, this risk is offset by another financial agreement or by an emergency clause contained in the original loan agreement. To allay these fears, XYZ and Bank ABC structure a loan in return, with XYZ paying $1 million to ABC Bank, and ABC Bank (using the security deposit) lending one million euros to XYZ. The current exchange rate between the U.S. dollar and the euro is 1:0.50 (i.e. 1 dollar buys half a euro).