Insights

From the inception of the secondary market for syndicated bank loans some 35 years ago, we have seen continuous movement in the direction of increased liquidity for the asset, but recent developments in this market point toward a reversal of this trend.

The Directive on Credit Servicers and Credit Purchasers was adopted by the EU in 2021 (the Directive) and the implementing technical standards (ITS) relating to the Directive have also been adopted by the European Commission. Member states (of the EU) were required to implement the Directive into local law by the end of 2023 and notably France, Luxembourg, Ireland and Germany have now passed laws implementing the Directive.

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.