It turned out to be a big step for the loan market. "The creation of the LSTA is similar in importance for the loan market to Henry Ford's introduction of mass production of the automobile," said Michael McAdams, president and cio of Four Corners Capital Management and Chairman in 2001. "Prior to the LSTA, trading was inefficiently handcrafted for each specific trade. The work of the LSTA brought about efficiency for sell and buy-side alike and the standardized documents resulted in the loan market being available to a vastly wider range of market participants and strategies."
|Allison Taylor, executive director of the LSTA,|
receives the Outstanding Contribution Award
from Don Pollard, managing director and global
co-head of leveraged finance at
Credit Suisse First Boston.
The LSTA's early years were spent focusing mostly on secondary trading issues. Par/near par confirms were adopted, a T+10 settlement timeline was put in place and a month-end secondary loan pricing service was created. By 1997, the LSTA had also produced a distressed trade confirm and a T+20 target for distressed trades. For the first three years, Taylor was Chair of the Association, but in 1998 became executive director and under the Chairmanship of Deutsche Bank's Bob Hevner, the LSTA began to formalize and expand-- moving into its first real home in the Empire State Building.
"The LSTA did a fantastic job of standardizing the secondary trading market," said Glenn Stewart, managing director and head of loan syndicate at Bank of America and chair in 2003. By 2000, however, the association needed to move to another level. "It was unclear what the next step was." Stewart said. "But it was apparent that if the LSTA did not expand it would be a negative sign for the asset class. This is when it really transformed to become the trade association for the loan market, both for the buyside and sellside as well as for the borrowers."
Stewart, Jane Summers, who was hired as general counsel in 2001 from Barclays Capital, and Credit Suisse First Boston's Don Pollard, really delved into primary market documents and standards. There were efforts to improve mark-to-market pricing, annual conferences and a variety of regulatory matters, including amending the New York Statute of Frauds to exempt loan trading. Once signed by Governor George Pataki, a trade done over the phone became legally binding. Meanwhile, there was a long-running effort to establish CUSIPs, led by JPMorgan's Tracey Robbins and Julia Kingsbury of CSFB. In the works for more than five years, CUSIPs will move the loan market in line with other asset classes leading to a far higher level of standardization and ease of trading.
Nancy Del Genio, head of loan sales at Deutsche Bank and a current board member, said the hallmark of the LSTA has been to help guide the loan market by implementing market standards that have helped improve the overall liquidity of the asset class. "The standardization of documents spearheaded by Jane Summers, Ruth Yang's work in trade data studies and Alison Taylor's involvement in the creation of the leveraged loan index have been critical in guiding the market to become more efficient," Del Genio said. Collectively "this has created a much better product."
From day one there were differences of opinion and over the decade there have been heated discussions. The thorny issue of assignment fees has been brought up in a multitude of board meetings and forums and to this day rolls on. One of the toughest moments came in June of 2002 when trading in XO Communications bank debt ignited controversy. The lead banks jammed through an amendment that halted trading of the name to prevent Carl Icahn from buying a controlling stake. Of course a number of buyside firms were also holding the debt and wanted to sell down and so the calls to Taylor began. "How dare these banks tell me that I don't have the right to manage my own portfolio," she told Loan Market Week at the time, summing up the cries from the buyside. An agreement was reached and, importantly, the market knew it had to turn to the LSTA to resolve issues.
As the market has evolved, so has the LSTA. The changes are reflected in the composition of the membership and the board. In 1995--when secondary trading volume was just $34 billion--the loan market was dominated by banks. Trading volume has exploded and was $145 billion in 2004. Ten years ago there were approximately 32 loan funds versus almost 400 now. In 1995 the LSTA had 21 members. Now there are 183 firms, including buyside, sellside and law firms. Along with the two vice chair representatives from Citigroup--Jonathan Calder and SunTrust Robinson and Humphreys'Pete Vaky--and Barclays' Eric Chilton as treasurer, there are a number of buyside shops on the board, including Scott Krase from Oak Hill Advisors, who occupies the chair role.
Much has been achieved in the past 10 years, but there are still ongoing and developing challenges. Distressed settlement has improved massively, yet it still vexes some investors, especially those used to the bond market. The divisions between the public and private markets are being tackled with new guidance to ensure uniform compliance and initiatives with the European-based Loan Market Association are being undertaken as the marketplace becomes increasingly global. Finally, education for the burgeoning asset class has emerged as a top priority. "The LSTA is the only place to go for issues associated with floating-rate loans and it has achieved a much broader perspective over the past few years," concluded Bank of America's Stewart.