LMA Launches Co-ordinating Committee Letters
24 September 2008After a benign period, there is anecdotal evidence of an increase in the number of loans in danger of breaching covenants. Since the last downturn, deal structures have become increasingly complex and the number and varying nature of participants in the market has expanded considerably.
At the beginning of the liquidity crunch, the LMA Board identified a number of new areas where work should be undertaken to prepare the market for an economic
downturn. A Working Party to look at insolvency issues was established, and that group quickly identified the need to refresh market guidance for when a corporate finds itself in a stressed situation.
As a result, the Working Party took on the task of producing Co-ordinating Committee Letters for use between Borrowers, a Co-ordinating Committee (the "Company Letter") and the Lenders (the "Inter-bank Letter").
Key features of the Company Letter
- Role of Co-ordinator/Co-ordinating Committee and purpose of appointment
- Appointment of lawyers and accountants
- Co-ordinator and Co-ordinating Committee may act in own interests
- Company indemnity
- Actions and protections
- Costs and expenses
- Disclosure
- Termination
Key features of the Inter-bank Letter
- Role of Co-ordinator/Co-ordinating Committee and purpose of appointment
- Actions and protections
- Own responsibility
- Obligations of Co-ordinator and Co-ordinating Committee are several
- Indemnity and exclusion of liability
- Disclosure
- Termination
The LMA Board hopes that these letters will help save both Borrowers and Lenders time at the outset of negotiating the solution to problems the Borrower is encountering.
Clare Dawson, Executive Director of the LMA, said: "This is just one of the many areas in which the LMA has been working to help market practitioners find solutions for the difficult market conditions they currently face."