United States: Changes To The Loan Syndications And Trading Association Documentation

Last Updated: July 4 2013
Article by Ann M. Batchelor

On Friday, June 28, 2013, the Loan Syndications and Trading Association (the "LSTA") will publish new versions of the forms of Par Trade Confirmation, Distressed Trade Confirmation, Purchase and Sale Agreement1 and Collateral Annex. The primary changes to the trading documentation will establish, by default, that a buyer post collateral when participating in unfunded revolvers and provide new formulas for calculating the Collateral Shortfall in the Collateral Annex. These changes reflect an effort by market participants to standardize the terms in order to shorten the negotiation period and more accurately reflect current market practices.

Par and Distressed Trade Confirmations

The new form of Par and Distressed Trade Confirmations and accompanying Standard Terms and Conditions will require that a buyer post collateral when participating in unfunded revolvers unless the parties agree otherwise. There will be a check the box option in the form so that the parties can indicate whether collateral will be required and if so, whether the collateral account will be established with the seller or a third-party custodian. If no options are selected by the parties, the default will be that collateral will be required for a participation with an unfunded revolver.

The definition of LIBOR2 which is used in calculating delayed compensation will be revised to facilitate the anticipated replacement of the British Banking Association (the "BBA").3 The current definition of "LIBO Rate" states that LIBOR is the 1-month LIBOR as set and published by the BBA. The revised definition will provide for a successor to the BBA if it is no longer publishing LIBOR.

The new form of Par Trade Confirmation will also provide ERISA4 representations for both the seller and buyer substantially similar to the language which currently appears in the distressed trading documentation.

Collateral Annex

The most substantial changes made by the LSTA will be to the form of Collateral Annex which is used when parties settle a trade by participation and the buyer is required to post collateral for any unfunded portion of a revolving loan.5

Posting Collateral

By default, the new form of Trade Confirmations will require collateral when the parties settle by participation unless otherwise agreed. The Trade Confirmations will provide check the box options allowing parties to indicate whether collateral will be posted with the seller or a third-party custodian. Additionally, where parties agree to establish a collateral account with the seller, the new Collateral Annex provides an option for the collateral to be held in a segregated account which would ensure such collateral will be used only for the obligations set forth in the Collateral Annex. In either case (third-party custodianship or segregation of collateral), the option must be agreed to between the parties at the time of trade. If it is not explicitly agreed to at the time of trade, any required collateral will be posted to a general collateral account with the seller. The Collateral Annex requires that a seller who manages a collateral account provide the buyer with monthly accounting statements.

Eligible Collateral

The Collateral Annex will add the term "Other Eligible Collateral" to allow parties to define what may be posted as collateral. The current form of Collateral Annex allows only U.S. dollars or treasury securities and agency notes to be deposited as collateral.

Collateral Shortfall

The most significant change to the Collateral Annex will be the new method of calculating the "Collateral Shortfall." Collateral Shortfall is the amount of collateral that must be transferred to the collateral account by the buyer from time to time. The formula for determining the Collateral Shortfall will now allow the parties to elect whether or not to ascribe value to the funded participation itself. If the parties ascribe value to the funded participation, this amount will fluctuate to reflect changes in the value depending on the price at which the loan is trading in the market.

Schedule 1 to the Collateral Annex will provide a check the box option of two formulas for determining the Collateral Shortfall. The first formula defines Collateral Shortfall as the pre-negotiated percentage of any unfunded portion of the participation minus any collateral which might already be in the collateral account. The second and more complex formula defines Collateral Shortfall as the sum of (i) the pre-negotiated percentage of any unfunded portion of the participation and (ii) the amount of such unfunded portion multiplied by 100% minus the market value of the participation to the extent that (i) and (ii) exceed the sum of (x) collateral in the collateral account and (y) the market value of the funded portion of the participation with haircut. In mathematical terms, the calculation is illustrated as follows:

CS = (UC x RCP + NA) - (EC + MVFP)
Collateral Shortfall Unfunded Commitments Required Collateral Percentage

The Required Collateral Percentage is the pre-negotiated percentage of any unfunded portion of the participation.

Netback Amount

The Netback Amount is the credit given to the buyer to compensate for the risk that, although the participation is trading at a discount, the unfunded portion may need to be funded at par. The Netback is obtained by multiplying the discount the loan is trading below par by the amount of the loan that is unfunded.

Eligible Collateral

The Eligible Collateral is the value of the collateral which might already be in the collateral account.

Market Value of Funded Participation with Haircut

The Market Value of Funded Participation with Haircut is the percentage (determined by the parties and set forth in Schedule 1 to the Collateral Annex) of the product of the market purchase rate and the outstanding amount of the funded portion of the participation.

For example:

Buyer buys from seller a participation in $10,000,000 of revolving loan commitments, of which only $2,500,000 is funded on the settlement date. For a simplified illustration of the operation of the formula, assume in this example that the Required Collateral Percentage (RCP) is 25% and the percentage specified in Schedule 1 to determine the Market Value of Funded Participation with Haircut (MVFP) is 90%. On the settlement date, prior to any delivery of collateral by buyer to seller (i.e., when the Eligible Collateral (EC) component of the formula equals $0), the amount of collateral to be delivered by Buyer (other than the participation itself, which is subject to Seller's security interest) would be as follows, assuming a current market price of 80%:

First Formula

CS = (UC x RCP) – (EC)

($7,500,000 x 25%) – ($0) = $1,875,000

Second Formula

CS = (UC × RCP + NA) – (EC + MVFP)

($7,500,000 x 25% + [20% x $7,500,000]) – ($0 + [90% x ($2,500,000 x 80%)]) = CS

($1,875,000 + $1,500,000) – (90% x $2,000,000) = CS

$3,375,000 - $1,800,000 = $1,575,000


The changes to the forms of Par Trade Confirmation, Distressed Trade Confirmation, Purchase and Sale Agreement and Collateral Annex should provide market participants with standardized terms which will reduce the extent of negotiation and shorten the amount of time between the trade date and settlement date. Loan market participants should familiarize themselves with the new forms of trading documentation to ensure at the time of trade that any relevant terms are discussed and accurately reflect the intent of the parties.


1. There are no substantive changes to the form of Purchase and Sale Agreement, but the document will be republished so the date is consistent with the Trade Confirmations.

2. LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. LIBOR comes in 15 maturities (from overnight to 12 months) and in 10 different currencies. The official LIBOR interest rates are announced once per working day at around 11:45 a.m. (London time) by the BBA.

3. The BBA will discontinue LIBOR fixing for a number of currencies and maturities.

4. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated under it.

5. The LSTA last published the form of Collateral Annex on February 6, 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions