The syndicated loan market in Europe has taken a step towards greater standardisation of its documentation with the launch yesterday of a new Leveraged Document.
It is the fruit of work done under the auspices of the London-based Loan Market Association (LMA), which was begun in response to demand from the leveraged finance market for the LMA to produce a form of leveraged finance facility agreement in much the same way as it had provided the Recommended Forms of Primary Document in 1999 for the investment grade market.
In recent years, the leveraged buyout market in Europe has grown significantly, with transaction volumes increasing from 18 billion in 1999 to 51 billion in 2003, according to Loanware. The number of transactions virtually doubled to 140 in the same period. In light of this growth, and the continuing arrival of new participants in the market, it was felt that the LMA could make a substantial contribution to the efficiency and liquidity of the market by producing a more standardised form of documentation.
A Working Party consisting of representatives from banks and major City law firms was established to consider the drafting of the Leveraged Document. Comments were also taken from the LMA’s Institutional Investor Committee.
“The LMA’s Primary Document for the investment grade market has done a great deal to improve the efficiency of that market, and is now generally regarded as the market standard throughout the Euroloan region,” says Tim Ritchie, Chairman of the LMA. “We hope, and expect, that the Leveraged Document will also become widely accepted, and that it will help with the further development of this important and growing sector of the market.”
The Loan Market Association was founded in December 1996 by seven leading international banks in London. Its aim was to encourage liquidity and efficiency in both the primary and secondary loan markets by promoting market depth and transparency, as well as by developing standard forms of documentation and codes of market practice. Banks, law firms and other market practitioners were invited to join the LMA, and the membership currently stands at over 200.
Since 1997, there has been sustained growth in secondary loan activity in the Euromarkets, with volumes for 2002 estimated at Euros 36 billion, and those for the first three quarters of 2003 estimated at Euros 34 billion.
Following their launch in 1999, the LMA recommended forms of primary documents have become increasingly used throughout the Euroloan region, and are now widely accepted as market standards.