The Loan Market Association (LMA) is targeting a revised LMA document by May/June 2005 that is intended to streamline cross-border trading for U.S. investors. This will be the first major revisions since 1999 with the documents currently out for discussion with a broad working group of participants in Europe and the U.S.
Ian Sandler, a v.p, at Morgan Stanley running the closing group and a board member of the Loan Syndications and Trading Association (LSTA), explained there needed to be convergence between the LSTA and LMA documents. "It's a natural development as the markets look to converge," added a U.K.-based lawyer. The changes were in turn strongly encouraged by U.S. dealers that had raised concerns with the LMA against the backdrop of explosive growth in the demand for European distressed product from U.S. investors.
One of the big changes will be the removal of conditionality in the new LMA draft and the introduction of the concept of "a trade is a trade," which means no party can walk away from a trade without penalty. That provision is in the LSTA docs. Other changes encompass ancillary rights, with a wider basket of rights that can be transferred from seller to buyer, including litigation rights pertaining to the transfer and there are also greater representations and warranties given by the seller. In addition to the revisions, a glossary on the two sets of documents is also expected to come out next month, jointly produced by the LMA and LSTA.
Important differences will remain in the documents, including the absence of delayed compensation in LMA trades. Sandler stressed that this is a major problem in cross-border trades. Also, LMA documents have no upstreams, which has some benefits but can also be problematic for a U.S. buyer. "This is jam for lawyers," said the U.K.-based lawyer, commenting on the time-consuming nature of upstreams.