Basic principles of secondary trading and loan portfolio sales for tax lawyers
Basic principles of secondary trading and loan portfolio sales for tax lawyers

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Basic principles of secondary trading and loan portfolio sales for tax lawyers
  • The LMA suite of documents for secondary trades
  • Timeline of a typical secondary debt trade
  • Secondary trading of distressed debts
  • Completing the trade confirmation
  • Key provisions in the LMA standard terms and conditions for secondary debt trading
  • LMA and Loan Syndications and Trading Association (LSTA) documentation
  • Use of information in the secondary loan market
  • Debt buy-backs
  • Loan portfolio sales

Secondary debt trading is the activity of one investor purchasing debt on the secondary loan market from another investor, who may have become a lender upon origination or primary syndication of the relevant debt, or have previously acquired it from another investor on the secondary loan market. It generally involves the transfer of single loans or a small number of loans (for example a number of tranches made available under one loan agreement) in one transaction. These transfers are documented using market standard documentation.

Broadly speaking, sellers engage in secondary trading activity in order to manage their loan portfolios more efficiently—they may need to deleverage their balance sheets for regulatory reasons or to maximise shareholder value, rid themselves of non-performing loans or seek to remove loans which do not meet their strategic aims (for example they may wish to focus on particular types of customer or 'core' business areas).

A loan portfolio sale is a transfer of multiple loan assets in one transaction, often undertaken for broadly similar reasons to single asset debt trades. There are a number of reasons why a seller might dispose of assets through a loan portfolio sale rather than a series of single asset debt trades. For more information, see Loan portfolio sales section below. In contrast to the secondary loan market, which uses Loan Market Association (LMA)