On October 1st the LSTA took the next step in its efforts to educate market participants on replacement benchmarks by distributing a draft “concept credit agreement” referencing a compounded average of daily SOFRs calculated in arrears (“Compounded SOFR in Arrears”).
Over the past two weeks the LSTA has continued its political advocacy with legislators and regulators on issues of importance to the loan market. Last week, Meredith Coffey and Elliot Ganz, Co-heads of the LSTA’s Public Policy Group, had the opportunity to join Congressman Greg Meeks (D. NY) for a free-ranging discussion over breakfast.
The LSTA released revised drafts this week of the LSTA trading documents to be used in connection with the new Primary Delayed Compensation Protocol. Below are links to the clean drafts and blacklined documents marked to show changes since the last versions sent to you for your review.
We’d be the first to acknowledge that transitioning from LIBOR to SOFR is hard. But LIBOR will end and we must prepare. Recognizing that, the September 5, 2019 Alternative Reference Rate Committee (“ARRC”) minutes introduced two tools to help ease the transition.
The Treasury Department and the Internal Revenue Service issued proposed regulations on Tuesday to relieve loan market participants of the tax burdens associated with LIBOR transition.
After returning more than 4% during the two-month rally that began the year, the S&P/LSTA Leveraged Loan Index (LLI) has failed to sustain any meaningful momentum. Since March, monthly returns have flipped from positive to negative while market value returns were positive just twice – the last time being July. In September, despite market value losses that were negative yet again (albeit at just -0.02%), the LLI sported a total return of 0.47%.
In observance of Columbus Day, the Loan Syndications and Trading Association (LSTA) recommends treating Monday, October 14, 2019 as a loan market holiday for purposes of calculating delayed compensation under the LSTA standard forms of trade confirmation.
Broadly syndicated loans to non-investment grade U.S. Corporations are widely misunderstood outside of the loan industry. A number of commentators imply that leveraged loans are shadowy corporate equivalents to pre-crisis sub-prime mortgages. This is clearly not true and, to respond to such conflations, the LSTA recently published a white paper addressing these views.
Headlines notwithstanding, it doesn’t seem like the U.S. leveraged loan market is that hot. Admittedly, S&P/LCD says lending picked up 15% between second and third quarter. But in the year-to-date, leveraged lending is down across the board, according to S&P/LCD and LPC.
Delayed compensation accrues on loan market trades that do not settle within a set number of business days after trade date. “Business Days” do not include Saturdays, Sundays or any day the Federal Reserve Bank of New York is closed.
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Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.