A busy day for the LMA

The Loan Market Association (LMA) has published new drafting for LIBOR and benchmarks, amended all facility documentation, published explanatory notes on auditors, and delivered a new super senior facility agreement with high yield notes and an intercreditor agreement with user guides for the leveraged/high yield sector.

What are the key developments?

On 12 November 2014, the LMA published amendments to the majority of its facility agreements under English law (including relevant user guides and all intercreditor agreements) as well as explanatory notes on three main areas of change:

(a) changes to drafting on interest rates following:

  • the refixing and republishing arrangements for ICE LIBOR
  • the removal of certain currencies from ICE LIBOR, to allow for other benchmarks to be used, and
  • the publication of the LIBOR Code of Conduct, following which, confidentiality of reference bank rates will, from now on, be given to the agent

(b) imminent operational changes under EU Competition policy, which mean it will be unlawful for a lender or agent to stipulate which firm or person, or category of firm or person, may be appointed by a borrower or guarantor as its auditors, and

(c) administrative provisions including, expanded use of websites, fees for letters of credit and a notification of expiry of a letter of credit

The LMA also published a new facility agreement and user guide in the leveraged/high yield sector for a super senior facility with a high yield note together with an intercreditor agreement and user guide.

The following explanatory notes should be read by any lawyers involved in using any LMA facility agreement as a template for a transaction. These are all available to LMA members on the LMA website:

ICE LIBOR Error Policy and LMA facility documentation

This note explains how the new refixing of LIBOR will work on a particular day. At the moment the 11.00 am rate is published at 11.45am. If there is an error requiring refixing it has to be notified by 3pm at the latest and so a refixed LIBOR will be published by 4pm. This will give some lenders and agents a problem should they rely on the 11.00am rate or wait until after 3pm. The note provides drafting for the parties to opt out of the refixed republished rate and this drafting is now in the facility agreements.

LIBOR Code of Conduct and revised LMA facility agreement

The ICE LIBOR Code of Conduct for contributing banks sets out steps for contributors to keep the rates added to the LIBOR calculation confidential. In the same way, all contributions made by reference banks to the agent will now also be made in a similar way to LIBOR contributions and kept confidential. Changes have been made to the facility agreements to reflect this approach. Correspondence between the LMA and ICE is available in a schedule to the note.

Domestic benchmark slot in schedules

This note sets out the options for alternative benchmarks which can be used for particular currencies, now that these are no longer available through ICE LIBOR. This document can be found under the facility documentation tab for each sector as it sets out the schedules required for the particular benchmark in the same format as set out for LIBOR in the facility agreement schedules. The benchmarks covered are:

  • BBSY (BID)—Australian Bank Bill Swap Reference Rate (BID)
  • BBSW—Australian Bank Bill Swap Reference Rate BKBM (MID)
  • New Zealand Bank Bill Buy/Sell Rate (Average Mid)
  • CDOR—Canadian Dealer Offered Rate
  • CIBOR—Copenhagen Interbank Offered Rate, and
  • STIBOR—Stockholm Interbank Offered Rate
Auditor choice provisions in LMA facility documentation

This note sets out the premise for the change in the context of EU competition law for the preparation of audited annual or consolidated accounts as required by EU law under Regulation (EU) 537/2014 (the Regulation) and EU Directive 2014/56/EU (the Directive), relating particularly to the facility agreements in the leveraged finance and commodity finance sectors of the LMA documentation. While implementation is due in 2016, the LMA states that it expects this will be implemented sooner in national laws and may be done in slightly different ways. At this stage the LMA is not recommending alternative wording for fear of falling foul of the Regulation, Directive or implementation under national laws. That said, it is introducing a concept of ‘Monitoring Accountants’ in an attempt, it says, ‘to meet the expectation of Lenders that certain functions (such as the review of compliance with financial covenants and any determination of the identity of Material Companies) will be carried out by a firm of accountants acceptable to the Lenders, to report on compliance in the Compliance Certificate. This mechanism does not expressly restrict the choice of statutory auditors'. Any existing provisions in breach of these new rules will also have to be amended as there is no grandfathering in place for existing transactions.

November 2014 Revisions Summary Note

In relation to benchmark fallbacks for the interest rate provisions, this summary notes sets out all the various options which parties can adopt where a screen rate fails, eg in the interest rate, alternative screen rate and market disruption provisions. It provides a helpful diagram of each option and the next steps required to revert to cost of funds. Costs of funds is also provided as a drafting option.

An explanation of the provisions on electronic communications and use of websites is explained in this note. This change reflects the increased use of websites by agent banks.

Also, all the information about changes to the letter of credit fees and notifications can be found here.

For details of specific amendments, however, please see the LMA PDF mark-ups for the relevant document, which are available to LMA members on the LMA website.

User Guide to Super Senior Multicurrency Revolving Facility Agreement with HY Notes

You will find this in the Leveraged/High Yield section under Guidance. The user guide for the accompanying intercreditor agreement is in the same section under Intercreditor.

Jacqueline Cook, solicitor in the Lexis®PSL Banking & Finance team.

First published on LexisPSL Banking & Finance. Click here for a free trial.

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