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What could the publication of the New York version of the Master Trade Loan Agreement (MTLA) for bank-to-bank trade loans mean in practice? Michael Evan Avidon, co-chair of Moses & Singer’s banking and finance practice group, New York, considers how the agreement differs from other MTLAs and how it could affect bank-to-bank trade loans.
The New York version of the MTLA for bank-to-bank trade loans has been published by the Bankers Association for Finance and Trade (BAFT).
The most important thing to know is that it was designed and drafted to reflect industry best practice in documenting bank-to-bank trade loans under New York law. From the point of view of a lending bank, especially, if it is currently using very short forms, the New York MTLA obviously has a lot of advantages, because while it is not an overbearing loan agreement, it’s more comprehensive than a form only a few pages long.
It does so most importantly in two respects. First, many trade loans are currently documented on one-off agreements, some of them quite short, so using a master format can make things a lot simpler—a bank can put the New York MTLA in place and then use a simple request form for each particular loan. Second, even if a bank is using a master format already, this particular version has benefitted from input from bankers across the world, internal and external bank counsel, and from banks both on the lending and the borrowing sides. It is essentially designed to reflect best practice in this area.
I think, as banks get familiar with the format, it will give them a great starting point for documenting the inter-bank relationship. Also, the MTLA is structured in a way that reminds banks to think about certain deal-specific issues. For example, a bank may want to put in jurisdiction-specific provisions depending on which jurisdiction the borrowing bank is in, because different cross-border issues arise depending on which countries are involved on the lending side and on the borrowing side. So, we could see greater efficiency and improved understanding between banks.
Some of the documents used now are less than clear (for example failing to fully define terms used in the document) and do not address potentially important terms (such as failing to provide a viable mechanism for enforcement and dispute resolution). The New York MTLA takes care of these problems. So if more people adopt the MTLA, there will be greater standardisation and it may be easier to understand these deals—that in turn may make it easier to get banks involved in making more of these loans or investors to buy interests in them—which may help to bring costs down and increase the volume of trade loans (and thereby boost the global economy).
Lawyers need to decide first whether they want to use this MTLA as a starting point or not. If they decide to do so, they need to familiarise themselves with the MTLA and decide whether to make adaptations to the form or to use it intact. If some lawyers decide to continue using different forms, they will want to look at the MTLA regardless for any ideas they can incorporate into their current documents (such as better defining certain terms or adding or refining provisions for enforcement and dispute resolution).
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
First published on LexisPSL Banking & Finance. Click here for a free trial.
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