LMA responds to proposal for a Regulation of the European Parliament and of the Council on the law applicable to the third-party effects of assignments of claims.23 May 2018
The LMA has responded to a recent EU proposal on the law applicable to the third-party effects of assignments of claims (the "Proposal") to express its concerns about the effect of the Proposal on the assignment of claims in the context of the European secondary loan trading market.
The LMA has stressed to the Commission that, when a participation in a syndicated credit facility is sold by way of assignment by a Lender (assignor), participants in the European secondary loan market would currently only look to the law of the assigned claim (i.e. the governing law of the facility agreement) to ascertain not only its effects in relation to contractual matters, but also in relation to its effects as against third parties. Therefore, participants in the European secondary loan market only look to perfect their assignment in accordance with the laws of the assigned claim. This practice has provided legal certainty and created stability and thereby encouraged cross border investment in this market.
As a result, introducing, as the Proposals suggest, the "habitual residence" of the assignor as the connecting factor for the resolution of proprietary disputes in the context of assignments of claims in the European secondary loan market would be a significant departure from current market practice and the current legal analysis applied by market participants to such assignments.
In view of the above and the potential disruption that the Proposal would cause to the European secondary loan market, the LMA has suggested as part of its response that assignments of debt claims against borrowers arising out of syndicated credit facilities and carried out in the European secondary loan market should be granted an exception to the habitual residence rule. The reason for this, as explained above, is that there is already a harmonised approach to the question of the third party effects of cross-border assignments of claims in the secondary loan market based on the governing law of the assigned claim.
The LMA response further sets out the manner in which the above could be achieved via amendments and clarifications to the existing proposal. It also provides more information on the size and nature of the secondary loan market more generally and the manner in which assignments are used.
Commenting on the Proposal, Nicholas Voisey, LMA Managing Director, said:
"We believe that the current impact of the Proposal on the secondary loan market would be significant and could, in our view, disrupt a fully functioning and thriving cross-border European secondary loan market by creating new problems for that market, increasing the complexity of transactions, lengthening settlement times and adding unnecessary costs."