LMA issues Primary Delayed Settlement Compensation Guidelines to facilitate efficiency in the primary leveraged loan market
17 April 2024
Improving efficiency, particularly around settlement times, in the primary and secondary loan markets continues to be one of the key goals of the LMA and its members.
Working with members of the Board from both the buy and sell side, the Board have approved a recommended timeline for settlement of primary leveraged loan syndication, incorporating fault based delayed settlement compensation.
The timeline seeks to address the delays occurring by providing a set of recommended timings for key steps in the syndication process and where the recommended settlement time is not met, the introduction of a fault based delayed settlement compensation mechanism.
The guidance looks to balance the competing interests of all stakeholders in the syndication process. The following key points should be noted:
- the timeline is a statement of recommended best practice with a target of 10 business days, meaning that it requires settlement - namely the potential lender/buyer becoming lender of record - within 10 business days from the later of the allocation date and the funding date;
- the compensation mechanism only applies to syndications where the facility agent, security agent, and underwriter are all part of the same group.
The LMA will keep these guidelines under review to ensure operational effectiveness, market impact, consistency with best practices, and fulfilment of the objectives of promoting greater efficiency and reduced settlement times.
If appropriate and applicable, the LMA will look to extend to other areas of the loan market at a later stage.
The LMA will look to track certain key metrics and maintain the existence of the Board Working Group to look at the utilization and impact of the guidance.
Nicholas Voisey, Managing Director at the LMA, said "The LMA is uniquely placed to address this matter, representing as it does both the buy and sell side. The timeline and provision for the payment of delayed settlement compensation is ambitious and looks to balance the interests of both parties to the transaction, whilst motivating them to greater settlement efficiency."
Charlotte Conlan, Chair of the LMA Board, and Vice Chair Global Leveraged Finance at BNP Paribas,
said “This is an important step in improving operational practices and consequently liquidity in the leverage loan market.”
Sebastian Potocean, Managing Director at Barings, said "This agreed initiative is an important market-wide first step towards improving settlement efficiency and the timeline for the payment of delayed compensation in the European loan market."