LMA launches template Italian law private placement documentation
06 July 2017The LMA is pleased to announce that it has launched template documents for use in Italian private placement transactions (the "Italian PP Documents"). The LMA project to develop the Italian PP Documents was commenced in response to demand from LMA members active in the Italian private placement market, who were keen to promote the development of this product as a viable financing tool in Italy. It is hoped that standardisation of Italian law documentation will assist in creating a more unified and efficient private placement market.
The Italian PP Documents launched today are the following:
1. a recommended form of facility agreement for use in Italian law private placement transactions (the "Italian PP Facility Agreement");
2. a recommended form of subscription agreement for use in Italian law private placement transactions (the "Italian PP Subscription Agreement"); and
3. an associated User Guide.
It was recognised that private placements in Italy currently take varying forms, some of which are loan facilities extended by domestic and EU AIFs and some of which are note issuances. LMA members participating in this market felt that the formulation of standard form templates incorporating both a loan and a note option would be a big step forward in achieving greater efficiencies by providing a common framework and language for those involved in these transactions.
The Italian PP Documents are governed by Italian law and assume the transaction is unsecured and with an investment grade company as borrower/issuer. The LMA believes that they will form a useful starting point for a wide range of transactions and will enable market participants to concentrate on the key commercial drivers and structural provisions which form the basis of their transactions. It is also hoped that the initiative will help to unlock new sources of liquidity and reduce perceived barriers to entry.
The LMA, along with the law firms Allen and Overy, Clifford Chance and Grimaldi (who participated on the working party for the project and co-drafted the templates), will be offering training on the Italian PP Documents for its members as part of its wide-ranging events programme in both London and Milan.
Commenting on the launch, Clare Dawson, LMA Chief Executive, said:
"In view of our substantial recognition in the market as a provider of template loan and private placement documentation, we felt that we were well placed to assist the market with this project. It is our hope that these Italian law templates will benefit issuers and investors, whether established or new to the market, in the same way as our English law private placement documentation has assisted participants entering into English law documentation."
"The creation of a suite of Italian law private placement documents is further evidence of the LMA's ongoing commitment to fostering market growth and liquidity throughout EMEA. It will be a very welcome addition to our existing suite of documents."
Commenting on the documents, Riccardo Sallustio, Partner, Grimaldi, said:
"The Italian private placement market is one of the largest in Europe. The Italian PP Documents and the related guide have been prepared in response to a specific need to standardise Italian law governed documentation and to offer international funds and institutional investors, as well as Italian issuers and borrowers, a balanced and reasonable starting point when negotiating privately placed debt transactions."
For further information, please see the appendix below.
- Why has the LMA produced Italian law private placement documentation?
The project was begun in response to demand from participants in the Italian private placement market. It was felt that the lack of standardised documentation was one of the barriers to growth of the market.
It was also seen as important to base the documentation on existing LMA loan templates on the basis that LMA documentation is already very well known across the market, particularly by corporate borrowers. This is also why the PP Subscription Agreement follows the format of the PP Facility Agreement, save to the extent necessary to incorporate any structural and legal variations between the two. - Why has the LMA produced both a loan and note version?
It was recognised early on in the process that market participants wanted documentation that accommodated both loans and notes. It was also considered important that the style of the documentation and the key commercial elements for both formats were as similar as possible. This was to enable investors and borrowers to select the most appropriate format for their individual transaction, based on structural, rather than commercial preferences. - To what extent do the private placement documents look like typical LMA documents?
All the standard sections of a syndicated facility agreement are included in the Italian PP Facility Agreement and (with appropriate changes to account for the different structure and Italian regulatory requirements) the Italian PP Subscription Agreement, other than agency and arranger provisions. In addition, where provisions are likely to be deal specific so that no common starting point can easily be identified, spaces have been left or options provided. Examples of these provisions include the "make whole amount"/"prepayment fee" clause, the financial covenants and the "more favourable terms" clause. Further discussion of these clauses is however included in the accompanying users guide. - Is the note version suitable for other types of bond issuance?
No. A number of the provisions included in the note document are not typically seen in the public notes market. The note version is therefore unlikely to be suitable for use on a Eurobond transaction, or where the notes are listed or held in a clearing system. - Under what assumptions have the Italian PP Documents been drafted?
The documentation has been produced on the basis of various assumptions set out below, made in order to avoid overcomplicating the documents. In summary, the Italian PP Documents assume:
• there is one company which will borrow/issue the debt and the debt is guaranteed by a number of its subsidiaries;
• the Obligors are companies;
• there is no facility agent. The Italian PP Documents do, however, include options for a Paying Agent or a Calculation Agent if these are required;
• there is no arranger;
• the Loan or Notes are either subject to (i) interest at a fixed percentage rate per annum or (ii) interest at a floating rate per annum which uses LIBOR or EURIBOR as a benchmark;
• the lenders or subscribers and holders are based in Italy;
• the Obligors are incorporated in Italy;
• the facility or notes made available under the Italian PP Documents are unsecured and the Company is of an investment grade credit rating; and
• the transaction is governed by Italian law. - Why do you expect the Italian PP Documents to be adopted by market participants?
LMA documentation is widely recognised within the corporate loan markets as a good basis for negotiation, and the LMA's documentation for use in both private placements and syndicated loan transactions is already widely used. It is therefore anticipated that the Italian PP Documents will be embraced in the same way as other LMA documents. - What benefits will the Italian PP Documents bring to the market?
The Italian PP Documents will bring numerous benefits to the market.
Firstly, increased efficiency will result from the standardisation of boilerplate terms and provision of a common and recognisable legal framework, with the ultimate aim of improving liquidity in the market. A lack of standardisation can lead to increased negotiation and time taken for transactions to complete. Such increased negotiations and completion times could also make a market less attractive to new investors.
Secondly, the LMA reviews its documents on a regular basis, thus ensuring that they reflect current market practice, accommodate the regulatory and legal framework and continue to meet the needs of participants in the market.
Thirdly, simultaneously with the launch of the Italian PP Documents, the LMA has also published a detailed Users Guide to provide additional guidance and to further assist users with the drafting process.
Finally, the LMA will hold a series of training events and seminars on the Italian PP Documents, both in London and Milan. - How does the LMA initiative fit with other private placement initiatives running concurrently in Europe?
The LMA has been working with a wide variety of market participants, trade associations and government bodies so that its initiative is aligned with that of others. The LMA is supportive of all such initiatives on the basis that they share the same underlying objective: to improve liquidity for the private placement product and to attract new investors and borrowers to the market. The LMA sees its private placement documents and those produced by other organisations as being complementary, and targeted at different market participants. The objective is to offer a range of tools to market participants in an emerging European market. It is envisaged that investors and borrowers will choose the most appropriate document for their purposes and that as market practice evolves and the product itself becomes more international in nature, the documentation will evolve appropriately.