The Loans Syndications and Trading Association has introduced changes to its standard documentation designed to better reflect market conditions and provide more fairness to market participants. The biggest change is its shift to using average LIBOR to calculate delayed compensation. The association has also revised its master confidentiality agreement and updated documents governing how bankrupt borrowers make payments to lenders.
The LSTA has worked on the changes, which went into effect Dec. 1, since last winter. Bridget Marsh, senior v.p. and assistant general counsel at the LSTA, said the change to using an average LIBOR to calculate delayed compensation was suggested by its members. "We felt it was a more equitable solution for both the buyer and seller," said Marsh. Previously, parties would work out delayed compensation by using a specific LIBOR that was locked-in two days before the delay period began. The problem with this approach was the pre-selected rate could be significantly above or below the market as interest rates moved higher or lower during the delay period. "We felt it was a more fair approach to take the average LIBOR to reflect changes in the interest rate," said Marsh.
To help market participants calculate average LIBOR, the LSTA has entered into an agreement with AverageLIBOR, the owner of Web site www.averagelibor.com. After a free trial period, LSTA members will pay $1 a transaction to calculate the average LIBOR.
Changes to the LSTA's master confidentiality agreement documentation that sets forth terms and conditions that govern the treatment of confidential information between parties to a trade reflect the market's increasing use of electronic distribution. For the first time, the agreement allows users to access a list of documents relating to a proposed transaction electronically rather than solely through hard copy (CIN, 10/23).
The LSTA has also improved its definitions governing the treatment of payments made under adequate protection orders orders issued by the bankruptcy court requiring borrowers to make payments to lenders. The changes clarify how proceeds should be paid in connection with borrowers that are restructuring or reorganizing. The documents also clarify compensation for loans not pegged to LIBOR and the payment of payment-in-kind interest.