At the request of junior lawyer members, we have launched a series of podcasts on different LSTA forms. The first podcast in the series discusses the LSTA’s Form of Fronting Letter Agreement which was published in 2017.
This form of letter agreement is designed to be sent by the lead arranger to the co-arranging banks and sets out the terms upon which the co-arrangers will purchase (and sell back) their pro rata share of any primary allocations that have not timely settled. The podcast highlights the key provisions of this form as well as basic concepts such as the meaning of a committed and uncommitted transaction and notes that primary allocations are in fact binding legal contracts which means that the fronting arranger must continue to manage the settlement of the those allocations even if the other arrangers have been required to purchase their pro rata share of any unsettled primary trades. The background to trickier concepts such as the operation of the “automatic trigger”, which establishes the trade date between the fronting arranger and each co-arranger should certain primary allocations not timely settle, is also provided and notes that because of the automatic trigger, the fronting arranger must provide reasonably detailed information to the other arrangers about the progress of the settlement of the primary trades at different times including, upon the reasonable request of any other arranger. The podcast dives briefly into the mechanics of when and how the other arrangers sell back to the fronting arranger their pro rata share of the settling primary trades and notes that there are no real practical examples of this taking place because often the purchase period termination date is simply extended by the parties. Finally, useful guidance about how the square brackets in the forms should be completed is also given.
The LSTA is planning to cover the LSTA Form of Assignment Agreement in the next podcast but is open to suggestions from members. Please contact Bridget Marsh with your ideas.