On 14 June 2018 the Israel Antitrust Authority (IAA) published the Antitrust Rules (Joint Loans Block Exemption) 2018. The exemption deals with loans extended jointly by a number of financial institutions to a single business borrower. These loans, which include consortium arrangements and loan syndications, are common, especially for large and complex projects. The organisation and management of a joint loan is carried out by one or more loan organisers.
The purpose of such arrangements is to enable several financial institutions to share risks and provide funding which otherwise would have been impossible (or could only have been offered under inferior conditions). At the same time, from a local antitrust perspective, these arrangements are deemed to be a collaboration between competitors and may raise competitive concerns. Therefore, such agreements were normally regarded as restrictive arrangements under the Antitrust Law 1988.
Engaging in a restrictive arrangement is illegal unless it has been exempted by the antitrust commissioner, approved by the Antitrust Tribunal or falls within the scope of a statutory or block exemption.
The Joint Loans Block Exemption provides a more formal and broader framework than the IAA's previous policy of periodic public opinions, which exempted consortium arrangements from restrictive enforcement under certain conditions.
Joint loans are often beneficial to both the borrower and the lender. From a borrower's perspective, this financing method allows the receipt of finance for large sums which a single lender may be unable to provide or only able to provide subject to inferior terms that reflect the increased risk embedded in these loans.
From a lender's perspective, a joint loan allows the credit risk to be spread efficiently between different lenders, thereby reducing the lender's overall risk and allowing it to offer better credit terms to borrowers. In addition, joint loans allow lenders to comply with the regulatory restrictions that apply to financial corporations with respect to their exposure to single borrowers.
Further, joint loans allow both parties to reduce transaction costs, as they spare the need to conclude several separate transactions between borrowers and different lenders. These advantages are relevant, particularly for small financial institutions, which usually lack the financial resources, knowledge and professional experience to manage large loans. Joining forces as part of a consortium of creditors allows such institutions to diversify their credit portfolio and benefit from the knowledge and resources of the other lenders.
Conversely, joint loans could diminish competition between financial institutions, as consortium members coordinate their proposals regarding the lender. The concern is that instead of receiving several competing bids, the lender will be forced to accept one joint bid.
The IAA acknowledged both the advantages and concerns regarding joint loans. In recent years, the antitrust commissioner has published several informal public opinions stating that the IAA will not undertake enforcement actions against lenders that form a creditors consortium provided that certain conditions are met, including:
- the borrower's written consent has been obtained in advance;
- the borrower was able to negotiate the credit terms with each lender separately; and
- proper documentation of the consortium arrangement has been kept and reported to the IAA.
These public opinions have been periodically renewed (eg, the IAA has excluded collaborations between Israel's two largest banks).
On 14 June 2018 the IAA published the Joint Loans Block Exemption. The main change is that the exemption sets out a formal regime for joint loan arrangements. In addition, the exemption provides a broader framework, as it also addresses loan organisers and not just consortium members.
The Joint Loans Block Exemption exempts joint loan arrangements that meet all of its requirements. Similar to the commissioner's previous opinions, the exemption requires lenders to obtain a borrower's prior written consent for joint loans and enable borrowers to negotiate credit terms with different lenders without a loan organiser's involvement.
The Joint Loans Block Exemption defines a 'loan organiser' as a lender that acts to set loan terms and create a consortium, and a 'large lender' as a lender whose share in the credit for business market is higher than 20%. The exemption stipulates conditions that aim to ensure that a consortium will not include more than one large lender or all potential loan organisers unless exceptional circumstances apply. Similar to other block exemptions, the Joint Loans Block Exemption is null and void if:
- the purpose of the joint loan is to reduce or prevent competition; or
- the joint loan arrangement includes restrictions that are unnecessary for the implementation of the arrangement in question.
Since the Antitrust Law may also apply to foreign lenders, it is important for foreign entities that intend to participate in joint loan arrangements in Israel to consider the antitrust aspects of such transactions.
For further information on this topic please contact Shai Bakal, Irit Brodsky or Sivan Weinreich at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.