On 16 December 2015, the revised versions of the (i) LMA Standard Terms and Conditions for Par and Distressed Trade Transactions (the "Standard Terms") and (ii) LMA User Guide for Secondary Debt Trading Documentation ("User Guide") will come into force. To keep you abreast of the changes we have compiled a brief summary of the main points:
1. Allocation of Interest and Recurring Fees/Non-Recurring Fees
Following the decision of the Supreme Court of the UK in the case of Tael One Partners Limited v Morgan Stanley & Co International plc (2015), which dealt with whether a seller or a buyer was entitled to receive the benefit of a prepayment premium, Condition 15.9(a) (formerly Condition 11.9(a)) of the Standard Terms has been updated to ensure that it operates as a general sweeper clause where the other provisions of the Standard Terms regarding interest and/or fee allocations do not apply (the Tael case incorrectly held that it did not operate this way).
2. Notarial Fees
A new Condition 18.3 has been included in the Standard Terms whereby notarial fees incurred as a result of an express term requiring the parties to notarize the form of purchase under the relevant credit agreement are to be split equally between the parties. This would include instances where the requirement is exercised at the option of the agent. As a general rule, the buyer is responsible for any other notarial fees (including in relation to the perfection of security).
3. Negative IBOR/Cost of Carry
Negative IBOR rates, which are currently the norm for many currencies, have resulted in the “cost of carry” limb of the delayed settlement compensation calculation falling in favor of the buyer. This reflects the assumption that, in theory, the seller would have been receiving a financial benefit from borrowing the settlement amount in the interbank market during the period between T+10/T+20 and the settlement date. However, the User Guide has provided suggested language to include an IBOR floor of zero, thereby precluding such a scenario. The User Guide suggests that the inclusion of such wording should be agreed to by the parties at the time of trade, however.
4. No Fiduciary Duties
Condition 21.6 makes clear that neither party shall have a fiduciary duty towards, or act as custodian for, the other party. This language has been included to avoid any unintended consequences that may otherwise arise (e.g., there should be no conflict of interest between a fiduciary and his beneficiary). Please note that under the LMA standard form of assignment agreement, each party is still obliged, under certain circumstances, to hold amounts received "on trust" for the other party.
5. Ticking Fees
Ticking fees (e.g., fees paid by the borrower on an unused portion of the borrower’s commitment) have been added to the definition of Recurring Fees in the Standard Terms. This addition to the Standard Terms provides further clarity that ticking fees will be included in any delayed settlement compensation calculation where the parties have included the “Settled Without Accrued Interest” option for the treatment of interest. However, ticking fees included in a loan commitment letter (and not a loan agreement) would fall outside the scope of the Standard Terms.