Insights

New York – April 1, 2021: Crowell & Moring and Kibbe & Orbe have joined forces effective today to provide expanded service offerings to clients in the financial services industry.  Twenty-four lawyers from the storied financial law firm are now part of Crowell & Moring’s New York, London, and Washington, D.C. offices, including Jennifer Grady, managing partner and chair of the firm’s executive committee, who will co-chair Crowell & Moring’s Corporate practice; three founding partners, Jonathan Kibbe, William Orbe, and Michael D. Mann, and the managing partner of the London office, Andrew M. Martin.

In the ever-evolving landscape of English law credit agreements in the European leveraged loan market, the dynamics of lending have undergone significant transformations in the last few years. One issue that has gained prominence is the increase in limits on the ability of lenders to transfer their loans and the associated restrictions imposed on potential new lenders. European syndicated loan agreements have historically included a standardised and expected set of transfer restrictions applicable to prospective lenders, reflective of the market guidance and templates issued by the Loan Market Association (“LMA”). Certainty of terms and the capability of an existing lender to sell out of a loan position have been the hallmark (and expectation) of the LMA loan market. However, trends in the drafting of credit agreements have contained a concerning increase in limitations on loan liquidity. As a result, many lenders are finding it difficult to sell their distressed loans. This article explores these trends, as well as their implications on the secondary loan trading market.

Any party active in the global secondary loan market will, at some point, come across questions or concerns involving the formation of a binding contract. These may be questions regarding whether an agreement to trade was made, what terms of the trade had been agreed, or even how the rules of contract formation apply to a telephone call, email or instant message conversation. In this global market the first question is: which country’s law governs contract formation? The second question is whether oral trades are enforceable in that jurisdiction. 

In today’s distressed global financial markets, the emerging focus is once again on counterparty credit risk, as it was in the aftermath of the Lehman Brothers collapse a decade ago. The European secondary loan market uses a standard form “loan participation” to transfer borrower risk and the economics of a loan in the secondary market. Several forms of loan participations are published by the London-based Loan Market Association (the “LMA”). For those investors holding loan participations under the LMA Funded Participation, a particular topic of concern, in addition to the credit risk of the underlying borrower, is the credit risk a of the lender selling the loan in the market. The seller is called the “grantor” of the participation.