The Loan Syndications And Trading Association is considering the establishment of a standard leveraged loan credit agreement to reduce costs for borrowers and shorten the time it takes to originate a loan. Additionally, the LSTA is considering creating a CDO committee and a pricing service for investment grade loans. The timetable on these issues may be adjusted in the wake of the Sept. 11 terrorist attacks, said Allison Taylor, executive director.
The initiatives are responses to the requests of commercial and investment banks and investment management houses, and they come in addition to a series of approved initiatives designed to increase liquidity and shorten originations.
The move toward a standard leveraged credit agreement, in addition to reducing costs and shortening origination, could increase liquidity by adding a measure of standardization to the loan product, Taylor said.
Many portfolio managers at commercial banks have expressed the need for a pricing service for investment grade loans. Currently, the LSTA/Loan Pricing Corp. service concentrates on leveraged loans. A pricing service could be developed based off derived pricing models, collection of actual trade data and information derived from the credit derivative and equity markets. No decision has yet been made to do this, but the board is meeting to discuss frameworks.
The Board has already approved the following initiatives to be undertaken:
* Capturing actual trade data
* Enhanced mark-to-market pricing
* Promotion of alternative derived pricing models
* Participation agreement for par/near par loan trading
* Participation agreement for distressed loan trading
* Uniform standard trade ticket.