Key takeaways from the LMA Syndicated Loans Conference 2018

Key takeaways from the LMA Syndicated Loans Conference 2018

The LexisPSL Banking & Finance team were at the LMA Syndicated Loans Conference 2018 yesterday on the theme of Building a Sustainable Future, where we showcased the Autumn 2018 edition of our magazine (available here) and heard some insightful debates on the state of the market.

The day’s opening speech noted that, in addition to the theme of the conference, the LMA’s main areas of focus were LIBOR, Brexit, KYC and operational efficiency. Here are our key takeaways from the day:

Green/sustainable lending

Banks and financial institutions are focusing increasingly on green/sustainable lending. Environmental and sustainability issues are moving beyond the bond markets through investment grade lending and into the leveraged space. Currently, this tends towards a top-down, C-suite approach driven by internal brand preservation rather than financial considerations. However, this is likely to change as market developments presently in nascent form ultimately bear fruit. Such developments include:

  • Network of Central Banks and Supervisors for Greening the Financial System (NGFS) – established by eight central banks and market supervisors (including the Bank of England) with aims of strengthening the global response to the Paris Agreement on climate change and enhancing the role of the financial system to manage risks and mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. Although a voluntary platform and forum for authorities to exchange views and best practices, it is hoped that the initiative will facilitate close coordination between various ongoing international initiatives with regards to climate related risks for the financial sector and the development of green finance
  • UN Environment Finance Initiative (UNEP FI) – a draft set of global banking principles (similar to the Principles for Responsible Investment for asset managers and the Principles for Sustainable Insurance for insurance underwriters) is due to be released for global consultation on 26 November 2018 (more details here). The principles are likely to cover all aspects of sustainable banking and require signatory banks to set goals for (and report on) their contribution to national and international social, environmental and economic targets: a challenge the banking industry to play a leading role in creating a more sustainable future
  • European Commission – proposals for a Platform on Sustainable Finance and a sustainability taxonomy as a cornerstone of activities to advance sustainable finance. It is intended that the taxonomy will provide clarity on which economic activities can be classified as environmentally sustainable and will cover activities contributing to climate mitigation and adaptation and environmental and social objectives. In due course, it will provide a yardstick for measuring sustainable capital flows and feed into possible centralised green ratings as well as be integrated into legislation
  • Equator Principles – increasing adoption by global financial institutions. Originally developed as a risk management framework for determining, assessing and managing environmental and social risk in project financings, there influence is now spilling over into the wider market
  • LMA and APLMA’s green loan principles (available to LMA members here) – launched in 2018 as a framework of market standards and guidelines aimed at ensuring consistency in methodologies used across the green loan market. The guidelines focus on borrowers’ use and management of drawdown proceeds and their processes for assessing, managing and reporting to lender syndicates

Technology

There is a recognised need for significant investment in IT and technology to harmonise industry-wide KYC and AML processes and ease transferability issues in the secondary market. A particular focus of the day was the centralisation and coordination of identifiers and data, particularly in light of the European Central Bank’s AnaCredit scheme, AnaCredit was launched in 2011 and is gaining increasing momentum as an amalgamation of and alternative for the vast array of legal entity identifiers (LEIs), financial instrument global identifiers (FIGIs), international securities identification numbers (ISINs), the US Committee on Uniform Security Identification Procedures (CUSIP) system and institutions’ own internally generated identifiers currently in use. It was agreed that such developments are essential for loans to continue as a competitive asset class but that the consequential operational changes and upgrades to legacy IT systems are headache inducing!

LIBOR and Benchmarks

The session on LIBOR and benchmarks focused on the operational and documentary challenges of the transition from LIBOR to Risk Free Rates. The panel felt that lenders were so far holding back on changing current practice to reflect the decision to transfer to SONIA as they hold out for a forward looking term rate to emerge. The LMA commented that it plans to amend its facility documentation in due course but much still needs to be ironed out in terms of how the rate will operate and appropriate fallbacks – feedback has been that fallbacks based on reference bank rates or cost of funds don’t work very well in practice. The LMA plans to publish guidance on dealing with new and legacy loan transactions in the context of the transition in the near future.

General market issues

Other topics discussed during the course of the day included:

  • Brexit – though this was skirted around as something beyond the scope of the conference and a matter for another day!
  • the leveraged market remains a sponsor’s market and banks are learning to live with covenant light deals
  • private equity returns reduced as a result of strong trade buyers and a solid IPO market driving up acquisition prices
  • the impact on certain industries (particularly aviation and retail) of IFRS 16’s changes to the accounting treatment of leases
  • current low default rates

Related Articles:
Latest Articles:
About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.