Revised LSTA Secondary Market Loan Trading Documentation

In continuing with its efforts to promote greater liquidity and certainty in the U.S. secondary loan trading market, on July 21, 2023, The Loan Syndications and Trading Association, Inc. (the "LSTA") officially released a revised suite of secondary market loan trading forms, which revised forms are effective for LSTA trades entered into on or after such date. 

The revisions to the LSTA form secondary trading documents are mostly technical in nature (merely updating all of the forms to the July 21, 2023 effective date), other than certain substantive revisions made to the Par/Near Par Trade Confirmation Standard Terms and Conditions (the “Par STC”) by integrating a number of provisions previously contained in only the LSTA Distressed Trade Confirmation Standard Terms and Conditions (the “Distressed STC”).  Because the prior (and original) iteration of the Par STC was intended to be used only for trading loans made to healthy borrowers, it contained few provisions to account for the effects of a borrower restructuring or reorganization on trade terms.  Notwithstanding this original intent, because market participants have been trading more consistently on LSTA par rather than distressed documents loans that are distressed but not yet in bankruptcy, the LSTA felt is necessary to add some of these distressed provisions to the Par STC.

• Proceeds/Purchase Price Calculations

Section 4 of the Par STC (Purchase Price Calculation) - the LSTA has co-opted from the Distressed STC the concept of “Proceeds” (defined as “any and all payments or other distributions received by Seller with respect to the Debt pursuant to [a] reorganization, restructuring, conversion or other modification” of the Debt at any time prior to the settlement date) and incorporated the LSTA standard distressed pricing conventions related thereto.

• “Settled Without Accrued Interest” treatment for adequate protection payments in bankruptcy

Section 5 of the Par STC (Interest Payments and Fees) - the LSTA has added language taken from the Distressed STC regarding treatment by the trading parties of “Adequate Protection Payments” made by a debtor during its bankruptcy case, as well as the related impacts on “delayed compensation”, in each case regarding a trade executed on a “Settled Without Accrued Interest” basis.

• Exclusions from “Paid on Settlement” interest treatment related to payment defaults by an obligor

Section 5 of the Par STC (Interest Payments and Fees) - if the trading parties agree to “Paid on Settlement Date” interest treatment and, prior to the settlement date, a payment default occurs (whether in respect of interest and accruing fees payable by an obligor under the applicable credit agreement, any other payment obligations of such obligor under the applicable credit documents or Adequate Protection Payments (if any)), the buyer is not required on the settlement date to pay to the seller the “Paid On Settlement Date Amount” (which consists of accrued but yet unpaid interest and fees and Adequate Protection Payments (if any) up to but excluding the settlement date).  This mirrors language contained in Section 5 of the Distressed STC.

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We anticipate that the LSTA will continually update and revise their suite of secondary market loan trading documentation.  We will endeavor to continue to provide updates on these developments.