Recent changes to the primary documents

Many of the recent changes to the LMA’s primary documents relate to the items discussed in the foregoing sections of this booklet. The table below summarises the key substantive changes made to the Investment Grade Agreements since the beginning of 2012.

Changes to the Leveraged Agreement can be relevant to the loan market more generally as it is used by lenders as a source of ideas for cross‑over or sub‑investment grade loan terms in the corporate market. The table therefore also highlights the key changes to the

46 The ACT Borrowers’ Guide to LMA Documentation for Investment Grade Borrowers contains a detailed commentary on the provisions of the Investment Grade Agreements from the borrower’s perspective. The Guide is available from www.slaughterandmay.com or www.treasurers.org.

Leveraged Agreement over the same period which tend to, or have the potential to, spill over into corporate loan documentation.

Date Issue Investment

Grade Agreements Leveraged Agreement January 2012

New forms of Investment Grade Agreement incorporating updated euro/$ swingline option.

Yes N/A

August 2012

Optional currency definitions and other minor alterations to currency/payment provisions prompted by euro exit concerns.

Yes (June 2014) Yes

September 2012

Zero floor added to IBOR definitions.

Yes (June 2014) Yes

September 2012

Status representation altered to prevent any obligor from changing its jurisdiction of incorporation after the date it accedes to the agreement.

No Yes

September 2012

Comprehensive revisions to agency provisions including extension of borrower’s indemnity obligations.

Yes (June 2014 but in slightly modified form, see section 3.3) Yes September 2012

New clause provides that the proceeds of any voluntary

prepayment shall be applied pro rata to each lender’s participation in that utilisation (and alterations to that clause require unanimous lender consent).

Yes (June 2014) Yes

September 2012

Anti‑corruption representation and undertaking added.

No Yes

September 2012

Structural Adjustment mechanic which permits changes to certain amendments to the structure, amount or currency of the facilities with the consent of Super Majority Lenders.

Date Issue Investment Grade Agreements Leveraged Agreement September 2012

Changes to governing law and jurisdiction clauses require unanimous lender consent.

Yes (June 2014) Yes

April 2013 Mandatory Costs provisions marked as optional provisions.

Yes Yes

April 2013 Addition of footnote to jurisdiction clause to highlight Rothschild decision.

Yes Yes

May 2013 Addition of option to repeat “no MAC” representations at more frequent and regular intervals e.g. weekly/monthly.

No Yes

May 2013 Various changes to reflect the best practice recommendations in the LMA’s Guidelines on transparency and the use of information e.g. new clause specifying circumstances in which agent is obliged to provide a list of lenders to the borrower.

No Yes

July 2013 Revised IBOR definitions. Yes Yes

July 2013 Changes of footnote to Increased Costs clause to highlight

finalisation of CRD IV.

Yes Yes

May 2014 Further change to “Screen Rate” definition in relation to LIBOR (change of administrator) and further change to footnote to Increased Costs clause to note CRD IV now in force.

Yes Yes

June 2014 Update of letter of credit provisions.

Yes In limited

respects June 2014 Incorporation of FATCA “Rider 3”

and FATCA common provisions.

The LMA forms are revised on an ongoing basis to keep pace with legal and regulatory changes and market practice. Some changes are made to all of the primary documents at the same time; sometimes amendments are made to agreements of particular types only (for example, the leveraged agreements or the real estate agreements).

This may be because the relevant provision is not thought appropriate for all types of loan agreement, but sometimes amendments are delayed for practical reasons (the desire not to burden the market with too‑frequent amendments or to “store up” minor amendments rather than making them on a piecemeal basis). This approach does mean, however, that it should not be assumed that the mechanical provisions of each of the primary documents are identical.

4.3. Usage

Most new syndicated loans are based on the LMA’s recommended forms in the English market. Arrangers of syndicated deals are fairly likely to encourage borrowers with pre‑LMA documentation to move their terms to the LMA format when they refinance, although a number of stronger credits prefer to and continue to use their own long‑established terms with their relationship banks, subject to minor technical adjustments as required.

Usage of the LMA’s recommended forms is now the norm in cross‑border deals too, in particular those involving larger syndicates.

In the domestic German market, the LMA format is also widely used (for all deals in excess of approximately €200 million). The same is true in France. In Italy, notwithstanding the absence of an Italian law LMA agreement, law firms often base their templates on the English law LMA agreements, adapted to address the requirements of Italian law.

That is not the case in other European jurisdictions. For example, individual law firm templates are used rather than the LMA’s recommended form for Spanish law transactions.

5. OUTLOOK

“Italy is experiencing a new wave of refinancings through bonds (including high yield) and renewed interest in Italian borrowers by foreign lenders. New measures being enacted by the Italian Government, allowing insurance companies and securitisation vehicles to lend directly to Italian companies, are likely to boost liquidity, enabling alternative debt providers effectively to participate in loan transactions.”

Bonelli Erede Pappalardo

“The French debt market has been boosted in the last few months by a strong recovery in M&A and capital markets activity. It is notable that an increasing proportion of financing transactions are combining traditional bank financing with high yield or other bond financing.”

Bredin Prat

“Although traditional bank financing appeared to be in retreat in favour of bond financing and other sources of (institutional) financing in 2013, this trend is now in reverse. Bank liquidity is again approaching higher levels offering borrowers relatively competitive financing conditions. At the same time, increased M&A activity on the back of a slowly recovering Dutch economy may drive an increase in borrower demand for bank finance.” De Brauw Blackstone Westbroek

“In 2014 the market has seen a remarkable number of “amend and extend” transactions with borrowers using the very favourable market to lock in low margins and “lite” covenants for the next 5‑7 years. There is an oversupply on the lenders’ side and it is not clear when the market may return to normal.” Hengeler Mueller

“Current economic and market conditions suggest a positive outlook for the loan market although the process of regulatory adjustment remains ongoing. Continuing recovery in the UK and in the euro zone, the uptick in M&A activity and more buoyant equity markets should provide a more stable platform for increases in loan volumes. The liquidity and terms currently available are welcome news for lenders and borrowers.”

Slaughter and May

“The Spanish market is undergoing a significant recovery in the context of M&A transactions and capital markets. Bank liquidity is also increasing, while the volume of restructurings is steadily reducing. International banks are regaining interest in financing Spanish transactions.”