BNY Mellon has launched Alternative Loan Financing (ALF), which provides an alternative structure for U.S. syndicated loans to be used as eligible collateral in a variety of financing transactions.
Syndicated loans are typically not easily transferable between counterparties, so they are not usually used in financing transactions. However, ALF works by using loans either as as a direct deposit that will allow them to become eligible collateral or to issue notes directly to the market. The loan can be used as collateral for transactions such as tri-party repo, securities lending and derivatives.
BNY Mellon can also create an equivalent, alternative “security” that fits into a standard settlement process, and the loans can also be repackaged to issue UCITS-compliant bonds, used to back Depositary Receipts and in securities lending transactions.
The bank says that ALF provides users with improved liquidity and potentially lower funding and set-up costs. Plus, BNY Mellon retains control of the syndicated loans at all times, so clients receive third-party administration of the loans, with BNY Mellon handling all settlement and loan administration requirements, receiving and reconciling all principal and interest payments and independently managing collateral valuation, mark-to-market and margin calls.
“Given the shortage of quality collateral in the capital markets, there is a great demand for loans as an asset class since they are generally perceived as good quality collateral. Alternative Loan Financing gives investors the opportunity to easily invest in this asset class,” says Jocelyn Lynch, managing director at BNY Mellon Corporate Trust and one of the creaters of the product.
Lynch was part of the winning team of BNY Mellon’s first innovation competition, A.C.E. (Accelerate, Collaborate & Execute) in 2013, and the product has now come to market. The 2014 A.C.E. winner created a depositary receipt product that attempts to better manage cross-border investment risks.
BNY Mellon Launches Syndicated Loan Product to Be Used for Collateral
BNY Mellon has launched Alternative Loan Financing (ALF), which provides an alternative structure for U.S. syndicated loans to be used as eligible collateral in a variety of financing transactions.