LMA launches template private placement documentation06 January 2015
The LMA is pleased to announce that it has launched template documents for use in European private placement transactions (the "Private Placement Documents"). The LMA project to develop the Private Placement Documents was commenced in response to demand from LMA members active in the private placement market, who were keen to promote the development of this product as a viable financing tool in Europe. It is hoped that standardisation of documentation will assist in creating a more unified and efficient private placement market.
The Private Placement Documents launched today are the following:
- a recommended form of facility agreement for use in private placement transactions (the "PP Facility Agreement");
- a recommended form of subscription agreement for use in private placement transactions (the "PP Subscription Agreement");
- a recommended form of term sheet for use in private placement transactions;
- a confidentiality agreement for use with the PP Facility Agreement and PP Subscription Agreement; and
- an associated User Guide.
It was recognised that private placements across Europe currently take varying forms, some of which are loan facilities and some of which are note issuances. LMA members participating in this market felt that the formulation of standard form templates incorporating both a loan and a note option would be a big step forward in achieving greater efficiencies by providing a common framework and language for those involved in these transactions.
The Private Placement Documents are governed by English law and assume the transaction is unsecured and with an investment grade company as borrower/issuer. However the documents are drafted in such a way as to be easily adaptable to other governing laws and market sectors. The LMA believes that they will form a useful starting point for a wide range of transactions and will enable market participants to concentrate on the key commercial drivers and structural provisions which form the basis of their transactions.
The Private Placement Documents have been formulated by an experienced working party consisting of a number of banks, non-banks and City law firms, all of whom are active in the private placement market (both in the US and across Europe). The project has also benefitted from the involvement of the International Capital Market Association (ICMA) and the ACT. This has provided valuable input particularly on the note format (developed in coordination with ICMA) and on borrower/issuer concerns (in the case of the ACT).
The LMA initiative is a significant contribution to the development of a European private placement market particularly when seen in the context of the current work of the Pan-European Private Placement Working Group coordinated by ICMA, which also includes the Euro PP Working Group (composed of all relevant professional organisations and participants in the French market). The Euro PP Working Group has also produced French law private placement documents to complement the French Charter for Euro Private Placements released in 2014.
The development of a private placement market in Europe is backed by a number of public authorities across Europe. Most recently, there has been an announcement by the UK government relating to a proposed tax exemption from withholding tax for interest on private placements. It is hoped that such initiatives will help to unlock new sources of liquidity and reduce perceived barriers to entry of this market.
The LMA will be offering training on the Private Placement Documents for its members as part of its wide-ranging events programme in each of London, Paris, Frankfurt and Amsterdam.
Commenting on the launch, Clare Dawson, LMA Chief Executive, said:
"In view of our substantial recognition in the market as a provider of template loan documentation, we felt that we were well placed to assist the market with this project. It is our hope that these templates will benefit issuers and investors, whether established or new to the market, in the same way as our syndicated loan documentation has assisted participants in the syndicated loan market."
"The creation of a suite of private placement documents is further evidence of the LMA's ongoing commitment to fostering market growth and liquidity throughout EMEA. It will be a very welcome addition to our existing suite of documents."
Commenting on the documents, Calum Macphail, Head of Corporate Private Placements, M&G Investments, said:
"I believe the creation of standardised private placement documents in Europe will simplify the borrowing process for corporates and has the potential to encourage new liquidity into this market. LMA documents are already an important part of the syndicated loan market and recognisable to borrowers and lenders alike. I therefore expect that these new templates will become a firm feature of the private placement market going forward. They form an excellent basis for negotiations between lenders and borrowers and are a valuable contribution to the development and identity of the pan-European private placement market."
Commenting on the project, Matthew Hancock, Minister of State for Business, Enterprise and Energy, Department of Business Innovation and Skills, said:
“We are backing business every step of the way by making it easier to start, succeed and grow. We have seen rapid growth in peer-to-peer lending and crowd sourcing but more needs to be done to create a more diverse business lending market. Private placements have the potential to offer a significant finance option for mid-sized businesses so we welcome the LMA’s efforts to make it easier. Expanding finance options for business was also recognised in the Autumn Statement when the Chancellor announced a targeted exemption from withholding tax on qualifying privately placed debt.”
Also commenting on the project, John Grout of The Association of Corporate Treasurers, said:
"This initiative from the LMA will provide a very useful framework and help to develop the private placement market alongside the loan market. As always it will be for the individual issuer to negotiate the specific terms of its own transaction."
For further information, please see the appendix below.
1. Why has the LMA produced private placement documentation?
The project was begun in response to demand from participants in the developing European private placement market. It was felt that the lack of standardised documentation was one of the barriers to growth of the market.
It was also seen as important to base the documentation on existing LMA loan templates on the basis that LMA documentation is already very well known across the market, particularly by corporate borrowers. This is also why the PP Subscription Agreement follows the format of the PP Facility Agreement, save to the extent necessary to incorporate any structural variations between the two.
2. Why has the LMA produced both a loan and note version?
It was recognised early on in the process that market participants wanted documentation that accommodated both loans and notes. It was also considered important that the style of the documentation and the key commercial elements for both formats were as similar as possible. This was to enable investors and borrowers to select the most appropriate format for their individual transaction, based on structural, rather than commercial preferences.
3. To what extent do the private placement documents look like typical LMA documents?
All the standard sections of a syndicated facility agreement are included in the PP Facility Agreement and (with appropriate changes to account for the different structure) the PP Subscription Agreement, other than agency and arranger provisions. In addition, where provisions are likely to be deal specific so that no common starting point can easily be identified, spaces have been left or options provided. Examples of these provisions include the "make whole amount"/"prepayment fee" clause, the financial covenants and the "more favourable terms" clause. Further discussion of these clauses is however included in the accompanying users guide.
4. Is the note version suitable for other types of bond issuance?
No. A number of the provisions included in the note document are not typically seen in the public notes market. The note version is therefore unlikely to be suitable for use on a Eurobond transaction, or where the notes are listed or held in a clearing system.
5. Under what assumptions have the Private Placement Documents been drafted?
The documentation has been produced on the basis of various assumptions set out below, made in order to avoid overcomplicating the documents. In summary, the Private Placement Documents assume:
- there is one company which will borrow/issue the debt and the debt is guaranteed by a number of its subsidiaries;
- the Obligors are companies;
- there is no facility agent. The Private Placement Documents do, however, include options for a Paying Agent or a Calculation Agent if these are required;
- there is no arranger;
- the Loan or Notes are either subject to (i) interest at a fixed percentage rate per annum or (ii) interest at a floating rate per annum which uses LIBOR or EURIBOR as a benchmark;
- the lenders or subscribers and holders are based in England and Wales;
- the Obligors are incorporated in England and Wales. While some provisions applicable to overseas companies are included, it is not possible to contemplate all amendments required for every jurisdiction and so some further changes may need to be made if the Obligors are not incorporated in England and Wales;
- the facility or notes made available under the Private Placement Documents are unsecured and the Company is of an investment grade credit rating; and
- the transaction is governed by English law.
6. Why do you expect the Private Placement Documents to be adopted by market participants?
LMA documentation is widely recognised within the corporate loan markets as a good basis for negotiation, and the LMA's documentation for use in syndicated loan transactions is already widely used. It is therefore anticipated that the Private Placement Documents will be embraced in the same way as the LMA facility agreements.
It should also be highlighted that prior to starting the project, the LMA did considerable market sounding of LMA members who are actively engaged in the private placement market, both in an arranging bank and investor capacity. Accordingly, the Private Placements Documents were put together and agreed by an experienced working party, consisting of representatives from banks (including in-house lawyers), investors (across a variety of jurisdictions) and major City law firms. The project has also been coordinated alongside both ICMA and the ACT. This process should mean that the document is widely acceptable as a starting point for negotiation.
7. What benefits will the LMA Private Placement Documents bring to the market?
The LMA Private Placement Documents will bring numerous benefits to the market.
Firstly, increased efficiency will result from the standardisation of boilerplate terms and provision of a common and recognisable legal framework, with the ultimate aim of improving liquidity in the market. A lack of standardisation can lead to increased negotiation and time taken for transactions to complete. Such increased negotiations and completion times could also make a market less attractive to new investors.
Secondly, the LMA reviews its documents on a regular basis, thus ensuring that they reflect current market practice, accommodate the regulatory and legal framework and continue to meet the needs of participants in the market.
Thirdly, simultaneously with the launch of the Private Placements Documents, the LMA has also published a detailed Users Guide to provide additional guidance and to further assist users with the drafting process.
Finally, the LMA will hold a series of training events and seminars on the Private Placements Documents, both in the UK and abroad.
8. How does the LMA initiative fit with other private placement initiatives running concurrently in Europe?
The LMA has been working with a wide variety of market participants, trade associations and government bodies so that its initiative is aligned with that of others. The LMA is supportive of all such initiatives on the basis that they share the same underlying objective: to improve liquidity for the private placement product and to attract new investors and borrowers to the market. The LMA sees its Private Placement Documents and those produced by the Euro PP Working Group as being complementary, and targeted at different market participants. The objective is to offer a range of tools to market participants in an emerging European market. It is envisaged that investors and borrowers will choose the most appropriate document for their purposes and that as market practice evolves and the product itself becomes more international in nature, the documentation will evolve appropriately.