LMA publishes new guidance and revised documentation to support the export finance market

The LMA is pleased to have published a new guidance note on untied ECA financing as well as updated buyer credit documentation.  These documents have been published alongside a supporting statement from the LMA’s Export Finance Working Party. 

With export finance market volumes growing 82% in 2023 to $191.5bn (source: TXF), changing market dynamics and the growing importance of ECAs in reducing strategic dependency risks and the green transition, changes to the OECD Consensus on Export Credits and ECAs expanding their support beyond their traditional remit, these new and revised documents come at an important inflection point for the market.

Untied ECA financing guidance note

The export finance market has experienced a significant rise in the use of untied financings provided by ECAs, with it now representing approximately 30% of export finance market volumes (source: TXF).  As this is an evolving area, this led to a demand (discussed with the Working Party) for guidance as to features of an untied financing and considerations when preparing loan documentation for such transactions.  The guidance note sets out considerations for users preparing an untied export credit facility agreement. 

Whilst the guidance was prepared with the Working Party, it has also been enhanced with input from several commodities traders who have accessed these products (in 2023 traders accessed a total of $16.39bn in export finance, source: TXF).  This was to ensure the guidance represented different perspectives and we thank the traders for their participation and insights into this initiative.  It is noted that this market is evolving and the LMA will look to update the note as market practice develops to help drive efficiency.    

Updated buyer credit facility agreement and user guide

The LMA’s buyer credit facility agreement was originally published in 2018.  Following on from its use in practice, along with recent changes to the OECD Consensus, the LMA has updated the agreement to reflect the OECD Consensus as well as the use of RFRs in the market.

Given the single currency nature of the buyer credit facility, there are now three variations of the agreement:

1. Agreement for compounded RFR use upfront (which covers compounded SONIA and compounded SOFR)

2. Agreement for term RFR use upfront (which covers term SOFR and term SONIA)

3. Agreement for use of EURIBOR with fallbacks to compounded €STR.  Term €STR wording will be included once the separate investment grade term €STR exposure draft (currently out for LMA member consultation) is in recommended form   

Except in relation to RFRs, the above agreements are substantively the same.  The LMA has also published a new term SONIA commentary to sit alongside the term SONIA facility agreement.     

In order to provide further guidance to the market and enhance transparency and efficiency, the LMA has also expanded the User Guide to cover commonly discussed areas, including environmental and social action provisions, sanctions (in line with existing LMA documentation) and the EU Foreign Subsidies Regulation.  

Working Party statement

Alongside the new and revised documentation, a supporting statement from the LMA Export Finance Working Party has been published.  Importantly this statement does not look to override any individual positions or policies.  It is instead intended to raise the profile, and note the benefits, of LMA documentation and guidance as a starting point for consideration (which in turn can help generate efficiency and consistency in loans, including in terms of minimum safeguards and protections that are in line with best market practice).  The production of this statement follows on from discussions with exporters at the LMA’s Export Finance Seminar earlier this year who encouraged ECAs and lenders in the market to consider how to drive efficiency in the market. 

Commenting on the release of the documentation and guidance:

Massimo Schirò, Legal Affairs Director at SACE said: “The updated LMA buyer credit form is an extremely useful tool for operators in the export finance market that provides a contractual base in line with common practices and with the new OECD rules.  It’s excellent news that further guidance is now also available for untied financing and loans to sovereign borrowers, as this will contribute to harmonizing practices also in these growing sectors ultimately improving transparency and efficiency in the market.”

Jonathan Joseph-Horne, MD and Co-General Manager at SMBC’s Global Trade Finance Department and the current chair of the ICC’s Global Export Finance Committee said: “It’s great to see the LMA provide further support for the export finance market as the market grows and expands.  The updated buyer credit facility, along with new guidance for the market as it works with changing untied lending products and lessons learned from sovereign default cases, will be valuable tools to help establish consistent and efficient practices and ensures the LMA export finance suite remains relevant.  This will ultimately help to build liquidity in the market, particularly as a wider range of players look to access and invest in it.  The Working Party of ECAs, lenders and advisers is to be commended for its work in balancing the needs of different stakeholder groups.”

Kam Hessling, Senior Director at the LMA said: “With the increasing importance and changing nature of export finance, we are pleased to build upon existing foundations to provide further tools to assist with efficiency and liquidity in the market.  The Working Party led initiative for a supporting statement, as well as the representation of different market perspectives, shows the value that the LMA can play in bringing market players together.  Thank you to the Working Party for your enthusiasm and engagement!  With further initiatives in the pipeline, we look forward to continuing to support efficiency and liquidity in this growing market and supporting the real economy.”

The new guidance, updated documentation, term SONIA commentary and working party statement can be found on the LMA website under the Export Finance section on the Documents Index page.