The Loan Syndications and Trading Association is looking to revise the industry's standard amendment procedures to kill the potential for another XO Communications imbroglio. Allison Taylor, chairwoman of the LSTA, said the changes are being sought so that a situation like that surrounding XO never happens again. The LSTA is working on closing the issue, but there are many lawyers involved in streamlining the documentation process. In addition, the LSTA is an advisory body, not a regulatory authority, so it is up to market participants to decide whether they will follow its recommendations.
One lender,Bank of America, has already taken up the cause and changed the assignment provisions in its standard loan documentation. The change, which is effective for all syndicated finance documentation going forward, requires a majority from each class of investor to approve restrictions in their ability to assign loans and obligations. Currently, the standard only requires a simple majority of all lenders.
According toLucine Kirchhoff, head of syndicated finance research at BofA, the bank had been getting feedback from its investors prior to the LSTA's board meeting last Wednesday. "The XO situation highlighted for people that there were holes in the assignment provisions," she said. "It was a matter of listening to our clients, and the investors are our clients."
B of A will continue to work with the LSTA as it reviews its standard assignment language and amendment procedures. "We're flexible," she said. "What we've done is a start, but we are receptive to tweaking."Peter Santry, managing director and distressed loan trader at BofA, is a member of the LSTA's board.
On June 11, XO Communications' bank group approved an amendment that requires a simple majority of the bank debt holders to consent to any transfers, including assignments and participation, for up to 90 days. The amendment was put in place to prevent investor Carl Icahn from buying up the bank debt and gaining control over the bankrupt company and its future.
