Press Releases


LMA launches debt buy-back language

29 September 2008

The LMA has published a revised version of its leveraged finance primary document, containing optional debt buy-back language. There are two options, one prohibiting debt buy-backs by a Borrower and members of its group, the second permitting such debt purchases by a Borrower under certain conditions. Both options accommodate debt purchase transactions by Sponsor Affiliates, but these purchases result in the disenfranchisement of that portion of the loan and related commitment purchased by the Sponsor Affiliate. This has been done to avoid conflicts of interest between Sponsor Affiliates and other syndicate members on issues that require a vote by the syndicate.

If a Borrower is permitted to make a debt purchase transaction, it can do so by way of either a Solicitation Process or an Open Order Process, both of which ensure that all members of the syndicate participating in the relevant facility have the opportunity to offer their portion of the relevant facility for sale to the Borrower if they wish. The drafting also addresses the question of what funds a Borrower may use for a debt purchase transaction.

Having previously issued a position statement on the subject of debt buy-back, the LMA Board hopes the new wording will help market participants to negotiate the commercial position they wish to achieve on individual transactions.

Clare Dawson, Executive Director of the LMA, said:

"This is a subject which has caused considerable controversy in the loan market over recent months. By providing drafting for our leveraged facility agreement, we aim to encourage market participants to address the concept of both Borrower and Sponsor debt purchases, which may commercially be regarded as quite different scenarios."