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Forging new partnerships and alliances in Europe Loan Market

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					June 1999 q Issue 6
                                    LMA News                             The regular update for Loan Market Association members


   Forging new partnerships
    and alliances in Europe
   By Tim Ritchie, LMA Chairman

THE SIX months or so since our last
newsletter have been a fascinating period
in the development of the loan markets in
Europe and must lead us to believe that
M&A activity across the Continent, as well
as continuing changes in the composition
and behaviour of the banking sector, will
make this the most exciting region of the
world in which to operate in the loans
                                                     PHOTO: COREL




business for the foreseeable future.
   Those who had predicted that the grad-
ual demise of the loan, in favour of securi-
ties issuance, would follow the introduc-
tion of the euro, had clearly missed the                            us replicate in other European countries in          q Educating and informing market
point that the loan product will have a                             the near future. Finally, across the range of        participants.
growing role to play which is complemen-                            our activities, it should be mentioned that             By doing this, we hope over time to
tary to capital markets activity, whether as                        the addition of Clare Dawson in an Execu-            become better established across the Con-
a bridge or as liquidity support, even if                           tive capacity has made a tremendous dif-             tinent as the authoritative voice for the
ultimately the securities markets in their                          ference to the speed and coordination of             loan markets in Europe, speaking on
various guises will indeed account for a                            our progress and to the level of profession-         behalf of our membership to borrowers
growing proportion of permanent funding                             alism of our organisation.                           and regulators, with whom we will clear-
for European clients.                                                  As this year has progressed, and particu-         ly need to establish broader and
   Over this period, the LMA has conduct-                           larly following Clare’s arrival, which               deeper relationships, as well as other
ed a very successful membership renewal                             enabled us to begin to expand our hori-              interested parties.
process, as well as making strong progress                          zons beyond that of a purely task-driven                In order to merit this description, we
towards fulfilment of the objectives which                          organisation, we have periodically revisit-          will clearly need to step up our pace in a
were established for 1999. On the member-                           ed the question of what the aspirations of           number of other areas, not the least being
ship front, we had ten institutions upgrade                         the LMA should be going forward. How-                in our coverage of Continental Europe. I
this year to Full Membership, the level to                          ever, while a glance at the initial aims of          still have a strong sense that awareness
which we hope all financial institutions                            the LMA might suggest that most of these             and acceptance of the LMA and its aims
will eventually aspire, and have attracted                          have now been achieved to varying                    does not extend far enough beyond cer-
12 new members to the Association, whose                            degrees, this is far less true of non-UK             tain key London-based individuals at sev-
representatives we hope to involve more                             based market activity, whether involving             eral of your organisations, and we will
closely in our activities over time.                                borrowers or indeed member organisa-                 need your help to change this. We will also
   In terms of recent achievements, of par-                         tions themselves. Accordingly, we have               be looking to encourage non-bank
ticular note are: the refinements and                               established as an urgent priority, at a time         investors to enter the loan market.
improvements to the valuation process, in                           when market activity outside the UK has                 We are closing in on our third Annual
which many of you participate; the recent-                          been expanding and developing rapidly,               General Meeting, which is set for 15 July. I
ly issued standard documents for the dis-                           the need to reach out to market practition-          look forward to seeing as many of you
tressed market; and the strong progress                             ers and clients elsewhere in Europe. Our             there as can find the time to attend in a
towards establishment of a standard pri-                            planned session in Frankfurt this month is           busy market. Bearing in mind the above
mary loan document. This last initiative                            an initial step in this direction.                   comments, I encourage those of you who
has brought us closer to the Association of                            Looking further ahead, the Board has              have not played an active role in the LMA
Corporate Treasurers in particular and,                             determined that our time should be focused           in the past to consider whether now
having been invited to speak on behalf of                           across Europe on the following issues:               would be an appropriate time to step for-
the LMA at the recent ACT Annual Update                             q Promoting the syndicated loan market               ward and take your turn. While an ele-
for Treasury Professionals, I am pleased to                         in its broadest sense.                               ment of continuity is important in any
report that this is a relationship which is                         q Continuing to foster market liquidity.             organisation, it is also important to
developing well. Indeed, it is one which                            q Acting as an agent for change in a                 inject new ideas and energy from time
we will be looking to several of you to help                        constructive way.                                    to time.
 LMA News




                                               Contents




                                                                                                                    Numbers




            Clare Dawson, Executive                                   News in Brief               2                           Back numbers of Issues 1,2,3,4
  Contact




                                                                                                                     Back




            Tel: 0171-282 7331                                        Committee News              2-3                         and 5 can be found on the LMA
            Fax: 0171-282 7330
            E-mail:   lma@cliffordchance.com                          LSTA                        4                           web site or obtained from Clare
            http://www.loan-market-assoc.com                          APLMA                       4                           Dawson on 0171-282 7331.
News in Brief                                     Committee News


LMA roadshow                                       DOCUMENTATION COMMITTEE

in Frankfurt
ON 23 JUNE the LMA will be holding a
roadshow in Frankfurt, to which German,
Austrian and Luxembourg members have
                                                  Standard primary
                                                    loan project
been invited, as well as non-members in the
region among whom the association would
like to publicise its work. This will be the
first time that the LMA has organised an


                                                  makes headway
event outside London, and is part of the
continuing process of reaching out to a
wider constituency in the syndicated loan
market in Europe.
   The format of the roadshow will be simi-
lar to that of the members’ meetings which        WHEN LAST writing on the work of the            borrowers, lenders and their respective
have been held each year in London, and           Documentation Committee, I introduced           advisers, consisting of representatives
will consist of an introduction by the Chair-     the principal project for the current year,     from Barclays Capital, Slaughter & May,
man, a buffet lunch, and workshop ses-            that of the primary document-                   Freshfields, Linklaters, Chase Manhattan
sions about the LMA Standard Documenta-           ation project.                                  Bank, Commerzbank and The Sumitomo
tion for trading par/near par debt, dis-            I am pleased to report that this              Bank; as well as from both the BBA and
tressed debt trading and loan portfolio           project is now well advanced and, at            ACT. In all, the Working Party met four
management.         Feedback     will   also      the time of writing, a draft agreement          times and reviewed three drafts of the doc-
be encouraged from participants about             has been recommended by the Board               ument in the process.
issues of particular interest in their            and distributed amongst the Full Member-          As a result, the current draft of the docu-
local markets.                                    ship for the appropriate Consultation Peri-     ment is felt to represent a sound basis for a
   After the summer it is planned to hold a       od.                                             syndicated facility agreement in which, in
similar roadshow in Paris, and the Board            The agreement is presently in the form        particular, the mechanics and standard
will consider further events in other major       of a combined multi-currency term and           boiler plate provisions achieve a balanced
European financial centres.                       revolving facilities agreement in order that    position between the requirements of
                                                  the various aspects of the different            lenders and borrowers alike.
                                                  types of basic facility could be
                                                  considered efficiently.
1999 renewals                                       This document is the product of a great
                                                                                                     “The current draft of the
THE MEMBERSHIP renewal process for
1999 has resulted in a considerable increase
                                                  deal of hard work, and a number of drafts,
                                                  on the part of Allen & Overy and Clifford
                                                                                                       document is felt to
in the number of Full Members. There are          Chance, as commissioned ”draftsmen” of             represent a sound basis
now 52 Full Members, an increase of 11            the project and by the Working Party
since the beginning of the year, resulting        established to assist in this process. A sig-           for a syndicated
both from new members joining and a               nificant step in the process was the discus-
number of Associate Members upgrading.            sions which developed with the British                facility agreement”
Total “paid up” membership is currently           Bankers’ Association and the Association
106 plus eight Courtesy Members, and it is        of Corporate Treasurers and the agreement
anticipated that during 1999 the overall          reached to work toward the objective of a
membership will soon exceed that of last          document which could be endorsed by all            As I said when last writing, however, the
year (114).                                       three associations.                             objective has not been to achieve a bland
  Recruitment of new members is                     Consequently, the eventual make up of         and mediocre agreement. Commercial pro-
continuing, and in particular several more        the Working Party achieved a forum              visions will remain to be negotiated. Rep-
law firms have joined since the beginning         reflecting the respective interests of both     resentations, Covenants and Events of
of the year. There are now members from                                                           Default, which would generally apply
19 countries in Europe, the Middle                                                                across facilities, have been provided for,
East, North America and the Asia                                                                  but these are by no means and are not
Pacific region, and the association is taking     Members’ Meeting                                intended to be exhaustive.
active steps, such as the roadshow in             THE THIRD annual Members’ Meeting                  The eventual document will be support-
Frankfurt, to encourage increased partici-        was held at the Churchill Hotel in London       ed by a Users’ Guide, which will also pro-
pation by institutions outside London.            on 18 March, and was attended by some           vide a basis for further commentary from
                                                  150 representatives from over 70 member         the Association of Corporate Treasurers,
                                                  institutions. The guest speaker was Paul        and in which reference can be
                                                  Chivers of Enron Europe Limited, who            made to any additional provisions which
LMA Executive                                     gave an excellent speech on “Managing           lenders and borrowers may agree should
IN MARCH of this year the LMA                     and Developing Bank Relationships in a          be included.
appointed its first Executive, Clare              Time      of   Market    Volatility   and          There is no doubt in my mind that the
Dawson, who is now based at the LMA               Consolidation”. This was followed by            project has achieved a clear document in
office in Clifford Chance. Before joining         workshop sessions on the new Distressed         plain English which represents a
the association, Clare had worked                 Debt Documents, the LMA website, and            workable agreement. This is undoubtedly
for a number of years in both                     Loan Portfolio Management, and the              due to the very hard work and construc-
origination and syndications at Sumi-             afternoon concluded with a reception.           tive approach adopted by the individuals
tomo Bank.                                          The excellent attendance level at the         on the Working Party, who have also
  Clare can be contacted by telephone, fax        meeting was a good indication that mem-         made a considerable personal investment
or e-mail, and welcomes members’ com-             bers are becoming increasingly aware of         of time and effort. I would like to take this
ments or suggestions about the LMA’s              and involved in the LMA’s activities,           opportunity to thank each of them for hav-
activities. Members are also encouraged to        and was a great encouragement to                ing participated, and so enthusiastically, in
contribute articles or letters for inclusion in   all representatives on the LMA Board            this process.
future editions of LMA News.                      and Committees.                                                         Christopher Elliott


2                                                                                                           LMA News June 1999
                                                                                                                 Committee News


  VALUATION COMMITTEE



       Valuation surveys now
      available on the Internet
SOLID PROGRESS has been made by the              tributing. The Summary Survey is avail-
Valuation Committee this year with most          able to all visitors to the LMA website and
of the 1999 goals already having                 we plan to offer this out to publications
been achieved.                                   this month.
  By the beginning of April, the Full Valu-         Remaining projects include the investi-
ation Survey had been posted on the LMA          gation of an LMA Loans Index, which we
website for access by Full Members, and a        hope to launch in the third quarter of this
“Summary Survey” (approximately one-             year. Methodology of the Survey will be
third of the names in the Full Survey) had       reviewed continually.
been constructed for use by a wider audi-           Thanks are due to all Full Members who
ence. The delivery mechanism for the Val-        have participated in the Valuation Survey
uation Survey was improved by moving             and to Computasoft Syndication for doing
from the use of disks provided by Pricewa-       a great job creating the Pricing Page on the
terhouseCoopers to posting the survey on         LMA Website. Thanks also to Clifford
the website. At the same time the frequen-       Chance, to my two Vice-Chairmen,
cy of the Survey was increased from              Chris Porter and David Fewtrell, and to
monthly to weekly.                               the    members         of    the  Valuation
  The weekly Survey on the website is run        Committee for their continued support
every Wednesday, with the majority of            and contribution.
traders and secondary market players con-                                 David Forbes-Nixon    Summary Survey on the Internet



  DISTRESSED DEBT COMMITTEE                                                                      TAX COMMITTEE



      Documentation                                                                             New provisional
                                                                                                  treaty relief
         launch for                                                                             proposals near
                                                                                                 to completion
      distressed debt                                                                           THE TAX Committee has been discussing
                                                                                                with the UK Inland Revenue ways of
                                                                                                streamlining the existing procedures under
THE STANDARD documentation package               promoting more liquidity, standardisation      which specific Revenue approval, on an
for buying and selling distressed or             and general professionalism are being          individual loan basis, needs to be obtained
impaired debt was launched at the                strongly supported.                            if a UK borrower is to pay interest to a
members’ meeting on 18 March. The                   The first few trades that have gone         foreign lender subject to appropriate treaty
documents        include      confirmations,     through using the new documents have           relief. Much progress has been made and
standard terms and conditions and                taken a little time to complete but have       it is hoped to agree final procedures
agreements for transfer of the obligations.      done so very smoothly and will                 with the Revenue for implementation by
There are separate sets for loans – be they      undoubtedly aid future trades for those        1 September.
still performing or in standstill – and for      counterparties.                                   The procedures will be optional since
claims in an insolvent estate.                      Going forward, a presentation of            some risk will be left with the UK borrow-
   At the meeting there was a large amount       the distressed debt documents will be          er. If, despite provisional approval having
of interest amongst members, and at a            included at the forthcoming roadshows to       been given to pay interest subject to treaty
number of subsequent privately organised         be held in Frankfurt and Paris. The            relief, further investigation reveals the
seminars this interest has picked up fur-        documents will be explained further            loan is ineligible, the Revenue will expect
ther. The general reaction seems to be sin-      and we hope to hear members’ views             the borrower to account for any tax that
cere thanks and plaudits for the LMA’s ini-      on adaptations which may be necessary          should have been deducted from day one
tiative in tackling this major task and a        to take account of local legal                 together with associated interest.
belief that it will be in everyone’s interest,   and    business     customs   in   those       Nonetheless, it is hoped that both borrow-
if not immediately, then certainly in the        particular markets.                            ers and lenders will benefit from the sim-
longer term.                                        We look forward to all and any              plified approach envisaged under the
   The initial concern is for the time and        feedback as you begin to use the docu-        new scheme.
effort in becoming familiar with something       ments and procedures developed                    Members requiring further details
new, especially in advance of actually           by your Distressed Debt Committee.             should contact the LMA Executive.
needing to do a trade, but the objectives of                                  Tony Tucker                                      Craig Clarke


June 1999 LMA News                                                                                                                       3
LSTA/APLMA news



 LSTA readying for the                                                                                                                News
  launch of enhanced                                                                                                                from the
Mark-to-Market product                                                                                                               APLMA
                                                                                                                              By Ian Adams, APLMA Chairman
              By Allison A. Taylor, LSTA, and Kevin Petrovcik, LPC
                                                                                                                             THE INAUGURAL conference of the
THE LOAN Syndications and Trading                        streamlined process of collecting buy-side                          Asia Pacific Loan Market Association
Association (LSTA) is close to concluding a              portfolios for pricing, and asking its mem-                         (APLMA) held on 15 April was a great
new business arrangement with Loan                       ber firms to price specific assets held by                          success, attended by some 200 delegates
Pricing Corporation (LPC) to completely                  the end investor.                                                   and guests. George Leung, George
enhance and upgrade the LSTA’s existing                     In February 1999, the LSTA’s Board of                            Fowler, Jon Kay and Edmond Ip were the
Mark-to-Market Valuation Project to a fee-               Directors voted to establish a licensing                            guest speakers. Mr Leung, Economic
based Mark-to-Market Pricing Product.                    arrangement with LPC to develop jointly                             Adviser to HSBC, gave an “Overview of
This new product will be made available to               an enhanced Mark-to-Market Pricing ser-                             Asia”, and Mr Fowler, Director of
LSTA member firms and bank loan market                   vice to the market place: LSTA/LPC Mark-                            Delphos International and Senior Vice
participants.                                            to-Market Pricing.                                                  President, Bank One International
   The LSTA’s existing Mark-to-Market                       This enhanced product is designed to                             Group, spoke about “Government
Valuation Project, begun in 1995, mainly                 provide timely, high-quality bank loan                              Resources for International Business”.
comprised loan traders and dealers, and                  prices to investors in an efficient manner.                         Mr Kay, Managing Director of Lowndes
was developed to comply with internal                    The trading community also benefits by                              Lambert, spoke about “Private Sector
bank requirements to value trading posi-                 providing individual asset prices once, to                          Political Risk Insurance”, and Mr Ip gave
tions. Since inception, the LSTA’s Valua-                one source, and leveraging that one mark                            a speech from a borrower’s viewpoint.
tion Project has been predominantly “sell-               to price all customers’ portfolios.                                 The programme also included a number
side” focused. Until recently, dealers sub-                 To accomplish this task, LPC, under                              of panel discussions on topics ranging
mitted new loan facilities to the pricing list           license of the LSTA, will consolidate the                           from “Primary Loan Market Develop-
(currently over 600 facilities). As a result,            cumbersome marking to market process                                ments” to “Corporate Restructuring and
only loans being actively traded or held in              between loan dealers and investors, and                             Debt Work Outs”.
position by dealers were priced on a regu-               then distribute composite prices to                                    Australia remains the bright spot in
lar basis. Over the last few years, the flood            investors through its secure LoanConnec-                            the region’s primary market, and to
of new institutional investors, portfolio                tor platform. Composite prices will be                              ensure that we meet our objectives of
managers and bank loan funds in the US                   derived based on each client’s desired                              being a truly pan-Asian Association we
has generated increased demand for sec-                  methodology – “average bid’’, “average                              have set up an Australian Branch. On 7
ondary loan market pricing data. Conse-                  ask”, “mean of the mean”, etc. Trading                              and 8 June several members of the exec-
quently, the burden of producing the Valu-               desks at LSTA founding member institu-                              utive committee travelled down to Aus-
ation Project has become increasingly                    tions will provide individual loan prices.                          tralia to assist with the launch. The
onerous for both non-founding members                    LPC will work with dealers and pricing                              National Australia Bank invited the top
of the LSTA and the sell-side dealers. It                customers to determine which dealer can                             12 arrangers in the market to a lunch on
was clear that something had to change to                provide an accurate price on each loan                              7 June to establish the branch. A cocktail
make this process more efficient.                        asset, to strive to obtain 100 per cent cov-                        party of all market participants followed
   Last January, the LSTA hosted a sympo-                erage of the underlying portfolios. A series                        this on 8 June, as well as press briefings,
sium to determine the improvements                       of reviews will be established to identify                          meetings and other visits to help get the
needed for the existing service. Bank loan               questionable data, which will be verified                           branch off the ground.
fund managers, par and distressed loan                   directly with dealers before the composite                             aplma.com is now a reality, and the
dealers, bank loan operations and settle-                prices are calculated.                                              secure side of the site is accessible by
ment personnel, portfolio risk managers                     After the business arrangement with                              Full and Founding Members. The delay
and bank loan arrangers attended the                     LPC is finalised, the LSTA and LPC will                             was largely our doing, to ensure that we
symposium. The overwhelming require-                     contact dealers at LSTA member firms to                             have a proper security system to protect
ment from the participants was for a                     execute Pricing Submission and Subscrip-                            the information. A small sub-committee
Mark-to-Market Pricing Product for the                   tion Agreements. LSTA member dealers                                will be set up to work on the format of
“buy-side” that could electronically pro-                who provide pricing information to                                  the syndication system.
vide indicative prices on bank loans on a                LPC will have access to daily or weekly                                Credit Derivatives are the “hot topic”
daily, weekly or monthly basis, and to                   marks on loans with three or more sub-                              these days, and they do actually work.
make the Mark-to-Market process more                     missions. Non-dealer LSTA members will                              On 23 June therefore, we are holding a
efficient for both dealers and investors.                have access to this information on a                                half-day seminar in Hong Kong to
   Other significant “discoveries” from the              monthly basis. Customers, whether LSTA                              explore how they can be used to help
symposium included:                                      members or not, can subscribe to                                    banks sell loans. Credit linked notes are
q The existing Valuation Project, created                LSTA/LPC Mark-to-Market Pricing for                                 ideal when the seller does not want the
by and for the dealer community, provid-                 an annual fee, with a discount for LSTA                             borrower or agent to be aware of a trans-
ed prices on only 45–60 per cent of a typi-              members, based upon the number of loans                             fer, when the buyer does not fit the trans-
cal fund manager’s portfolio.                            in their portfolio and the frequency in                             ferability conditions of the loan, or the
q The typical institutional investor was                 which they require pricing – daily, weekly                          buyer simply prefers to have a strong
able to achieve approximately 97 per cent                or monthly.                                                         partner helping determine what might
coverage, but only by going out to dealers                  Please address any questions about the                           constitute a default. Citi, BNP, Clifford
and compiling pricing directly, which                    upcoming LSTA/LPC Mark-to-Market                                    Chance and others will lead the
often proved time-consuming.                             Pricing to Allison Taylor, Executive                                discussion with examples of credit-
q In order to achieve its primary goal of                Director, LSTA, at 212-666-8279, E-mail:                            linked notes, discussion on accounting
eliminating bank loan market inefficien-                 lsta@pikeonline.net or Kevin Petrovcik,                             matters, balance sheet concerns and
cies, the LSTA needed to change its exist-               Vice President, LPC, at 212-489-5455 Ext.                           other issues.
ing pricing methodology and create a                     231, E-mail: kpetrovcik@loanpricing.com.


4                      LMA News is published by the Loan Market Association in association with Financial & Business Publications
                                          Limited, 95 Wigmore Street, London W1H 9AA. Tel: 0171-935 4959.
                                                                                                                                      LMA News June 1999

				
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