Press Releases


LMA launches documentation to address Finance Party default and recent market disruption

30 June 2009

In response to the bank failures and market turmoil encountered in late 2008, the LMA has published new clauses for primary documents to address the difficulties that lenders and borrowers may have encountered in the syndicated loan market as a result of market events. These changes have focussed on four main areas: lender default; the effects of an Agent becoming subject to distress; protection for issuing banks; and the mechanics of dealing with market disruption in the interbank funding market. The changes are intended to mitigate the effect on syndicate members and lenders of a Finance Party failure. New concepts have been introduced to facilitate this, including that of a Defaulting Lender, an Impaired Agent, and Non- Acceptable L/C lender, and the Cashless Rollover, whereby rollover loans under a Revolving Facility can be effected by way of netting and book entry.

The LMA's existing cost of funds provisions and market disruption clause have been also amended. The definition of LIBOR/EURIBOR has been altered to allow parties to choose whether to specify a Screen Rate or a Reference Bank rate as the primary means for establishing the relevant LIBOR/EURIBOR. In the market disruption clause, an additional stage has been included, so that the rate of interest will only be determined on a lender-by-lender basis after obtaining a reference bank rate from a wider range of Alternative Reference Banks, and if the cost of funds of a specified proportion (intended to be greater than the proportion required to trigger a Market Disruption Event) of lenders exceeds that rate.

Clare Dawson, Managing Director of the LMA, commented: "Traditionally, syndicated loan primary market documentation has not contemplated lender or Agent failure, but has focussed on the possibility of Borrower default. After the events of last autumn, the LMA has done considerable work on addressing the problems that failure of a major financial institution could give rise to in the syndicated loan market. We hope that the new documentation will offer additional confidence that the market would be able to handle similar events effectively should they recur."