April 14, 2021 - Our Operations Conference kicked off yesterday as Steve Connolly (JPMorgan), Brian O’Neill (Bank of America), David Lee (Fidelity) and Elaine Mahon (Invesco) used common sense to connect the dots between Agent Bank and Buyer perspectives and suggested the following optimal settlement and servicing practices and workflows (albeit with a little nudging from the LSTA’s Ellen Hefferan):

  • Buyers should submit KYC and tax documentation to Agent Banks and counterparties prior to entering or sub-allocating a trade.  Similarly, KYC compliance and tax teams should perform their analysis promptly to avoid settlement delays.  All parties should follow the LSTA Guidance:  Know Your Customer Considerations for Syndicated Lending and Loan Trading to ensure that they meet – but do not unnecessarily exceed – legal requirements.  In addition, there needs to be a better understanding of the rationale for and timing of tax “refreshes” which cause significant delays. (Note: An LSTA committee will be formed to review tax issues causing delays and unnecessary withholdings.) And if you want faster onboarding, utilize either the LSTA/LMA Administrative Detail Form or IHSMarkit’s Form.
  • A new buyer cannot become a lender of record without the prior written consent of the Borrower, which in most Credit Agreements is deemed given 10-15 Business Days after the request has been made. Borrowers rarely consent; therefore, the period must elapse.  It is recommended that the deemed consent period be no longer than 5 Business Days, enough time for a Borrower to object but not long enough to drag settlement on for a month.
  • When new money is added to existing deals, it is either pursuant to a new facility (requiring a new CUSIP) or an addition to an existing facility (utilizing the existing CUSIP).  This information must be communicated to the buyers at the time of allocation.  Should such facility “funge” into existing debt at the time of funding, at that point, the new facility (new CUSIP) can be terminated but the separation initially is needed.  It may be cleaner to settle primary allocations and pre-trigger/post-trigger trades prior to merging the facilities.
  • Perhaps the easiest way to avoid having the Agent “pull trades” is to check off on SDC as a Seller, only when one has the position in inventory to sell, and as a Buyer, only when one has the cash to purchase and has posted an affiliate letter or obtained Borrower’s Consent, should either be necessary.  Employing settlement certainty when settling primary allocations may be worth exploring.
  • From the buyer perspective, there is no need to provide interest and principal notices, including rate information for the next interest period, earlier than the day prior to the actual payment and commencement of new contract period.  Amending notice provisions in Credit Agreements could significantly decrease the vast number of days that settlements are “on hold”.
  • Can we really say that time spent quibbling over pennies is time well spent?  Add a tolerance of $1.00 to payments made (+/-) and commitments transferred on assignment agreements (without scrapping the entire assignment process to start anew) and focus on more important issues!

All the action points above fall under the category of “common sense” fixes.  If we can agree on these common sense fixes – and maybe encourage vendors to support the data transparency and connectivity that support these fixes – what can’t we do?!

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