The Loan Syndications and Trading Association has approved a proposal to develop additional model credit agreement provisions governing agent and lender rights and obligations. The project aims to govern the relationship between the agent and the lending syndicate --as well as certain other technical matters -- and is designed to reduce uncertainty, particularly in times of market stress, noted Jane Summers, general counsel for the LSTA.
The LSTA started talking about these issues before Sept. 11, but there was increased support after the terrorist attacks, Summers said. "Immediately following Sept. 11, a number of companies needed to draw down on revolvers as the CP market was shut for a few days," she said. Some agent banks analyzed the risk of sending the money without collecting the funds from the other banks in the syndicate, she added. The banks then noted the language governing the documents between the syndicate and the agent bank is not standardized, she explained.
The provisions will cover yield protection, which refers to the capital adequacy, break funding and tax gross up, agent prefunding clawbacks and payment sharing. In addition, borrower indemnity, jurisdiction/governing law confidentiality and notices are being addressed. As well as reducing uncertainty, the provisions will help reduce transaction costs in connection with origination activity and limit legal review in connection with primary and secondary sales to an exceptions basis, Summers said. The LSTA has designed an accelerated process for development of the provisions, with publication of model provisions hopefully within a year, she added. Instead of canvassing a wide group in the market before drafting the provisions, the LSTA is using a small working group to produce a draft and then will open it up, Summers noted, explaining this should hasten the process.
The working group comprises officials from Bank of America, Bank of New York, BANK ONE, CIBC, Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs and J.P. Morgan.