The LSTA and LMA Present Joint Secondary Documents Teach In Thursday March 25 2010 SUMMARY OF ECONOMIC IMPLICATIONS Clare Dawson LMA Summary of economic implications • Dela

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The LSTA and LMA Present Joint Secondary Documents Teach In Thursday March 25 2010 SUMMARY OF ECONOMIC IMPLICATIONS Clare Dawson LMA Summary of economic implications • Dela Powered By Docstoc
					      The LSTA and LMA Present
Joint Secondary Documents Teach-In
         Thursday, March 25, 2010
SUMMARY OF ECONOMIC
IMPLICATIONS
Clare Dawson - LMA
Summary of economic implications

• Delayed Settlement Compensation will be calculated
  using a “two-step method”, namely:

  – Seller pays Buyer all interest and recurring fees on
    the Traded Portion; and

  – Buyer pays Seller interest on the Settlement
    Amount
Summary of economic implications

• Break funding default position will be that IT DOES
  NOT APPLY

• With respect to permanent reductions and payment of
  fees (i.e.to whom they benefit) all references are to “on
  or after Trade Date”

• If there is a default under a loan which has traded on
  “Settled Without Accrued Interest” basis, it flips to
  “Trades Flat”
Summary of economic implications

• Revised Buy-in/Sell-out (BISO) methodology

• Counterparty insolvency now catered for with ability
  for non-insolvent counterparty to terminate the
  contract

• “Trade is a Trade” concept now applies to Par Trades

• Essential that counterparties agree ALL TERMS OF
  TRADE when the verbal contract is struck
Roadmap of an LMA Trade

25 March 2010
Deborah Neale – Clifford Chance
Introduction

•   Trading a loan – the structure
•   Suggested timeline
•   Which secondary trading documents should I use?
•   What choices do I need to make?




                                       Roadmap of an LMA Trade 7
LMA Trading Documents – Structure of a Trade

•   No change to structure/method
•   Confidentiality/KYC/due diligence
•   Oral trade (trade is a trade - no conditionality)
•   Confirmation (evidences oral trade)
•   Terms and Conditions (general)
•   Sale and purchase agreement
•   Pricing letter




                                              Roadmap of an LMA Trade 8
LMA Trading Documents – Structure of a Trade




                                      Roadmap of an LMA Trade 9
Suggested Timeline
T–x                   KYC requirements satisfied
                      Buyer and Seller exchange Confidentiality Letter (if necessary)
T                     Trade Date (telephone or otherwise)
T+1                   Seller sends request to Agent for Borrower consent (but see Condition 6)
                      Seller sends Credit Documentation to Buyer (unless sent before Trade Date) (But see Condition 7.2(b))

T+2                   Responsible Party sends Confirmation to Other Party (Condition 4(a))
                      Agent sends consent request to Borrower

T+4                   Other Party returns Confirmation to Responsible Party (Condition 4(b)).

T+5                   Responsible Party sends Transaction Documentation to Other Party (Condition 8) .

T+7                   Borrower’s approval of trade

T + 7 (Par)           Both parties sign Transaction Documentation - deliver to the Agent (But see Condition 8).
T + 15 (Distressed)
T + as soon as        Settlement Date (Condition 10.1)
reasonably
practicable
T + 10 (Par)          If applicable, delayed settlement compensation starts to accrue (Condition 10)
T + 20 (Distressed)
T + 60                Buy-in/Sell-out applies if one party fails to perform its Settlement Delivery Obligations (Condition 22.3)
(par only)



                                                                                             Roadmap of an LMA Trade10
LMA Trading Documents

              Confi Letters
  (Seller) (Purchaser) (Agent/Broker)          No Change
                 Master


         Trade Confirm (Par)
                                             Trade Confirm
  Trade Confirm (Distressed & Bank
                                              (Bank Debt)
                Debt)



                                             Trade Confirm
         Trade Confirm (Par)
                                           (Risk Participation)




                                             Trade Confirm
  Trade Confirm (Distressed Claims)
                                                (Claims)


                                        Roadmap of an LMA Trade 11
LMA Trading Documents
 Terms and Conditions (par)                 Terms and Conditions for Par
 Terms and Conditions (distressed & bank        and Distressed Trade
     debt claims)                           Transactions (bank debt and
 Reps & Warranties (distressed bank debt/      Claims)
     secondary lender)                      Notices and Pricing Panel
 Reps & Warranties (distressed bank debt/      Methodology
     original lender)
 Reps & Warranties (distressed claims/
      secondary lender)
 Reps & Warranties (distressed claims/
     original lender)


 Funded Participation (Distressed)               Funded Participation
 Funded Participation (Par)                        (Par/Distressed)



         Risk Participation (Par)               Risk Participation (Par)


                                               Roadmap of an LMA Trade 12
LMA Trading Documents
                                        Fund/Risk Participation
    Funded/Risk Participation (Par)
                                                (Par)


         Risk to Funded (Par)            Risk to Funded (Par)


                                         Master Risk (Par) and
 Master Risk and Master Funded (Par)        Master Funded
                                           (Par/Distressed)

                                        Removed (elevation in
      Put option/Call option (Par)
                                       Participation Agreements)


         Assignment (Par)
                                       Assignment (Bank Debt)
  Assignment (Distressed Bank Debt)




                                         Roadmap of an LMA Trade 13
LMA Trading Documents
                                     Assignment (Distressed
   Assignment (Distressed Claims)
                                            Claims)


      Transfer Agreement (Par)       Transfer Agreement (Bank
   Transfer Agreement (Distressed)             Debt)

Termination and Transfer Agreement
    (Distressed)                     Termination and Transfer
Termination and Transfer Agreement     Agreement (Par and
(Par)                                      Distressed)


        Settlement Letter (Par)
                                          No Equivalent
      Pricing Letter (Distressed)


       Users Guide (Distressed)
                                           Users Guide
          Users Guide (Par)

                                     Roadmap of an LMA Trade 14
Know Your Documents

• Which Trade Confirmation?:
  – Bank Debt (Not Risk Participation)
  – Risk Participation (Bank Debt Par)
  – Distressed Claims

• Form of Purchase
   – Novation
   – Assignment
   – Participation (Risk or Funded)



                                         Roadmap of an LMA Trade15
Know Your Options - New

• Is it a par or a distressed trade?
• Settlement Date (as soon as reasonably practicable)
• Delayed Settlement Compensation (still optional but
  separate from BISO (par))
• Legal Transfer only
• Termination on Insolvency between Trade Date and
  Settlement Date
• Buy-in/Sell-out (par only/new default position)
• Breakfunding (par only/new default position)
• Participation – No Traded Margin
• Additional representations and warranties
• Original lender
                                       Roadmap of an LMA Trade16
Conclusions

• Same structure but one set of documents
• Know your documents
• Know your options (Checklist)




                                      Roadmap of an LMA Trade17
Overview of Combined Terms
and Conditions
25 March 2010
Justin Conway – Goldman Sachs
Deborah Neale – Clifford Chance
Terms and Conditions - Process

• LMA Secondary Documentation Committee

• Merger began with Terms and Conditions. Other
  documents followed

• Terms and Conditions now based on existing
  distressed

• Therefore main differences are to par



                                Overview of Combined Terms and Conditions
                                                                       19
Terms and Conditions – New for Par

• Trade is a trade – mandatory settlement

• Settlement Date – as soon as reasonably practicable

• Delayed Settlement Compensation – follows
  distressed to put Buyer and Seller in position of
  T+10/20 settlement. Must be selected but now
  separate from BISO

• Settled without accrued – clawback for Borrower
  default

• No breakfunding unless specified
                              Overview of Combined Terms and Conditions 20
Terms and Conditions – New for Par (contd)
• Purchased Assets include ancillary rights and claims
  and non cash distributions

• Obligor insolvency provisions (i.e. info requirements)

• Two-way indemnities for breach of agreed terms or
  warranty, failure to perform obligations and resulting
  from obligation to reimburse or disgorge

• Seller pays Agent’s expenses (i.e. – steering
  committee) up to Settlement Date, or, if Trades Flat,
  Trade Date

                              Overview of Combined Terms and Conditions 21
Terms and Conditions – New for Par (contd)

•   BISO
•   Only applies to Par Trades
•   Based on LSTA model
•   Differences to current BISO
     – BISO applies to all par trades unless expressly
       excluded.
     – BISO only applies if the exclusion of the liability clause
       for the LMA Pricing Panel and the associated third party
       rights provisions are incorporated into the transaction.
     – BISO kicks-in 60 Business Days after original Trade
       Date (Trigger Date).

                                   Overview of Combined Terms and Conditions 22
Terms and Conditions – New for Par (contd)

  – BISO Notice can be served any time after Trigger Date.

  – Defaulting party has 15 Business Days to remedy
    default.

  – Non defaulting party has 15 Business Days from end of
    Cure Period to enter into Substitute Confirmation.

  – Disputes over price for substitute trade referred to
    Pricing Panel which acts according to Pricing Panel
    Methodology.

                                Overview of Combined Terms and Conditions 23
Terms and Conditions – New for Par (contd)

  – Permanent shield.

• BISO scenarios




                            Overview of Combined Terms and Conditions 24
Terms and Conditions – New to Par & Distressed

• Termination on Insolvency
   – Applies between Trade Date and Settlement Date
   – Insolvency Event follows ISDA
   – Default = termination by notice (in LMA form)
   – Either party can select automatic termination for certain
     insolvency events in confirmation or by notice
   – Consider master notice for particular counterparty.
   – Legal implications – jurisdictional.
   – On termination, NIP calculates the Early Termination
     Amount.


                                 Overview of Combined Terms and Conditions 25
Terms and Conditions – New to Par & Distressed (contd)

  – Early Termination Amount Statement (in LMA form).

  – Payment by Insolvent Party of difference between Early
    Termination Amount and the Settlement Amount
    (calculated as at the Early Termination Payment Date).

  – Default interest.




                              Overview of Combined Terms and Conditions 26
Terms and Conditions – New to Par & Distressed (contd)

• Business Day Definition

• Average LIBOR/EURIBOR

• Confidentiality (not to confuse with Borrower
  confidential information). Note: Settlement service
  provider




                                                        27
Terms and Conditions – New for Par & Distressed (contd)

• Tax gross up except in respect of interest and fees
  under Credit Documentation

• Notices by email

• Seller to send Buyer copies of all notices/documents
  received under Credit Documentation between Trade
  Date and Settlement Date




                                Overview of Combined Terms and Conditions
                                                                       28
Terms and Conditions – Representations

• All representations and warranties now included as
  standard in the Terms and Conditions
   – regardless of whether trade is par or distressed
   – regardless of whether the traded portion is bank debt or
     an insolvent claim
   – regardless of whether the seller is an original or
     secondary lender

• Common mutual representations for par and
  distressed trades
   – typical corporate representations

                                  Overview of Combined Terms and Conditions
                                                                         29
Terms and Conditions – Representations (contd)

• Common seller representations
   – legal and beneficial ownership
   – no documents other than the credit documentation
   – no default of seller/PiT in relation to the purchased
     assets
   – traded assets capable of being assigned/participated
   – amounts used in calculating the settlement amount true
     and accurate
   – ERISA compliance
   – quality of Ancillary Rights and Claims


                                 Overview of Combined Terms and Conditions
                                                                        30
Terms and Conditions – Representations (contd)

• Additional specific par trade seller representation
   – no decision to accelerate or enforce rights under the
     credit documentation
• Additional specific distressed trade seller
  representations
   – provision of the credit documentation to the buyer
   – no "connection" with any obligor
   – no "bad acts" or set-off or counterclaim
   – no notice or knowledge of any claim impairment
   – no obligation to make further advance or extend further
     credit
   – no proceedings against seller/PiT which would
     adversely affect the purchased assets
                                  Overview of Combined Terms and Conditions
                                                                         31
Terms and Conditions – Representations (contd)

• Buyer representations
   – compliance with confidentiality requirements
   – ERISA compliance

• Additional representations
   – to be annexed to the confirmation
   – variations to standard representations and warranties to
     be agreed at time of trade




                                  Overview of Combined Terms and Conditions
                                                                         32
Terms and Conditions – Representations (contd)

• New for Par
   – some additional seller representations
   – predecessor-in-title representations
   – Ancillary Rights & Claims
   – ERISA

• New for Distressed
   – ability to assign/participate the purchased assets




                                   Overview of Combined Terms and Conditions
                                                                          33
Participations

25 March 2010
Justin Conway – Goldman Sachs
Introduction

• Outline of process
• Legal structure and role of Funded Partipation
• Differences from current par Funded Participation
• Differences from current distressed Funded
  Participation
• Voting Rights
Outline

• Focus on forms of Funded Participation
• Combined document
• Based on currently published distressed Funded
  Participation
• Same terms apply whether a trade is par or distressed
  (other than voting rights)
• Other forms of participation conformed
Legal structure of Funded Participation

• Upfront payment by Participant to Grantor
• In return, Grantor pays Participant amounts equivalent
  to those received by Grantor from Borrower under the
  relevant Loan
• Legal basis is a limited recourse loan from Participant
  to Grantor – no change in “ownership” of the relevant
  Loan
• Participant takes credit risk on relevant Borrower and
  on Grantor
Role of Funded Participation

• One of the Forms of Purchase
• But also the “fallback” Form of Purchase under the
  “trade is a trade” provisions of the Standard Terms
  and Conditions unless
  – not possible
  – changes can’t be agreed
  – parties elect otherwise
• N.B. not designed as a freestanding document
Key changes from currently published par Funded
Participation

•   Deletion of Traded Margin concept
•   Grantor’s duty of care
•   Non-attributable sums allocated pro rata
•   Participant bears risk of debt restructuring
•   Treatment of Non-Cash Distributions
•   Information Rights
•   Elevation Rights
•   ERISA
•   Framework for collateral for undrawn commitment
•   Termination provisions
Changes from currently published distressed Funded
Participation

• Some changes to terminology
• Allowance made for interest treatment selected in Agreed
  Terms
• Specific provision made for Grantor withholding only
• Ability for Participant to opt out of receiving information
  under Credit Documentation
• Participant bears risk of amendments to Credit
  Documentation
• Obligation on Grantor to bring about an Elevation if the
  trade “defaulted” to a funded participation
• Participant given two Business Days’ notice of
  requirement to make funds available
• Participant given a two Business Day grace period to
  remedy breaches
Voting Rights

• No change to the current position
• Par trade
  – Where Participation is of all Grantor’s commitment Participant has
    voting rights on key reserved matters only:
     •   date of payments
     •   changes to amounts or currencies
     •   reduction in interest/recurring fees
     •   release of security
     •   all Lender matters
  – Otherwise no voting rights
• Distressed Trade
  – Parties’ choice
  – If voting rights are given, Grantor gives effect to Participant’s
    instructions
  – Majority voting
Questions?




             UK/2279285/02
Comparison Between LSTA & LMA
     Terms & Conditions
       Thursday, March 25, 2010
Comparing LSTA and LMA Docs
 Structural differences
    Transfer methods
    Timing
    Settlement
 LSTA Upstreams vs. LMA Step-ups
 Participations in the US and UK
 BISO Mechanisms
 Novations and Assignments
 Termination rights




                              44
Comparing LSTA and LMA Docs
 Loan agreements governed by NY law which trade on both
  LMA and LSTA documents
 Delayed compensation and purchase price calculations
 Other differences:
   Bar Date/Proof of Claim/Insolvency
   Voting
   LMA Substantive Terms
   Representations




                            45

				
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