In a strong signal to secondary market participants that European loan investors’ concerns are being heard, on Feb. 7, 2012, the Loan Market Association (“LMA”) released a note reminding primary market participants of ways that structuring primary documentation can negatively impact secondary market liquidity.1 Some of the considerations addressed include:

  1. Transferability restrictions in the loan documentation, and ensuring that there is sufficient access for secondary investors to accede;
  2. Consultation and consent requirements by a borrower, and if they exist, suitable timeframes for a borrower providing consent, as well as the practical effect on settlement times for secondary trades if borrower consent is simply required to be “not unreasonably withheld”;2
  3. Minimum transfer and minimum hold amounts and their impact on secondary investor access to the secondary market;
  4. Transfer fees and the potential disincentive these could have on investors considering acquiring an interest in a particular loan;
  5. Ability for bank debt transfers to be conducted on a non pro rata facilities basis, to ensure maximum flexibility for buyers to acquire their preferred facilities;
  6. Use of pro-rata interest settlement (i.e., where the agent pays interest to each lender of record during its period of ownership) to reduce administrative burdens between buyers and sellers; and 
  7. Avoiding executing transfer documentation in the form of a deed for transfer documentation (unless required by local law) as the formalities required to execute by deed can be burdensome and may delay the settlement process.

While it remains to be seen how these issues will be factored into primary documentation, the release of the note clearly demonstrates recognition by the LMA that a robust and liquid secondary loan market is vital for the long-term sustainability of the syndicated loan market