March 9, 2018 - This week the LSTA hosted its annual legal conference in London jointly with the LMA. After a record number of conference attendees were formally welcomed in addresses delivered by the LSTA’s Executive Director Lee Shaiman and the LMA’s Managing Director Nigel Houghton, global economist, Trevor Williams set the scene for the day’s discussions by giving an overview of economic trends and noted that, although the global economy continues to grow, the UK might be underperforming in this growth trend. Bridget Marsh of the LSTA moderated the European and US loan markets session where both borrowers’ and lenders’ views were represented. The European loan market continues to embrace borrower-friendly terms – perhaps even more so than in the US – with 2018 European deals even including the notable “trapdoor” provision first seen in the US’s 2017 J. Crew deal which permitted IP forming part of the term loan’s collateral package to be transferred from a restricted subsidiary to another subsidiary and then pledged as collateral for other debt. No one expects the trend of greater flexibility or more aggressive terms – depending on your perspective – to reverse until the credit cycle turns. Leading the direct lending session, Thomas Mellor of Morgan Lewis and his co-panelists noted that the markets should expect continued growth in this middle market sector especially given the amount of money raised by those lenders and the benefit offered to borrowers of certainty of terms and speed of execution. Nonetheless, direct lenders are preparing for greater competition from banks who have developed competitive middle market lending platforms and are focusing on mid-tier sponsors and smaller corporates. Even direct lenders are moving towards more borrower friendly terms with cov lite unitranches being done in the US market. During the audience on-line polling, 85% expect direct lenders to gain market share from bank lenders over the next two years but unlikely that any such inroads will be made in the Nordic regions where traditional banks remain firmly favored by loan market participants. Elizabeth Leckie of Allen and Overy led a practical dialogue about the UK’s 2019 Brexit with bankers who stressed that banks were positioning themselves for a hard Brexit next year and had no time to wait for any transition period. The banks operating in the European financial hub were grappling with practical considerations such as maintaining access to clearing houses and settlement systems as well as highlighting that serious stumbling blocks relating to taxes, schools, and language existed when seeking to move London-based employees to continental Europe. Afternoon keynote speaker David Chmiel examined the politics of trade and globalisation noting that because China and Russia are now considered strategic competitors the dynamics by which those nations need to be viewed must inevitably change. When polled online, 80% of attendees supported oversight of inbound foreign direct investment in their home country but 90% believed that protectionist policies towards innovation would not support business in their home country. While delivering a TEDx style talk on Blockchain, Dr Lee Braine praised the work of ISDA’s Market Infrastructure and Technology Oversight Committee for developing standards on top of which the latest and most efficient blockchain technologies could be built and encouraged the loan market to follow suit. In his speech, Anthony Macey of BNY Mellon distinguished between cryptocurrencies and digital currencies explaining that all cryptocurrencies, such as Bitcoin and Dash, are algorithmically determined, and he cautioned that their original goal of being censorship-resistant was both useful and dangerous. Tess Virmani of the LSTA and Kam Mahil of the LMA then briefed us on the latest developments to find a reference rate to replace LIBOR and highlighted the global trade associations joint work in these efforts. The next session featured a fascinating conversation led by LSTA General Counsel Elliot Ganz with Joanne Kellermann, a member of the EU’s Single Resolution Board (SRB) and former board member of De Nederlandsche Bank (DNB), the central bank of the Netherlands. Ms Kellermann described what it was like to be in the epicenter of the global financial crisis and the immense challenges faced by the DNB and the Dutch banks that it supervised. She laid the blame primarily on weak credit skills and a faulty corporate culture and posited that European banks were almost certainly in a better place than a decade ago, yet she did not assume they were immune from the potential effects of a new financial crisis. The day wrapped up with Caroline Hobson of CMS Cameron McKenna Nabarra Olswang leading a panel of competition law experts who highlighted the latest anti-trust law trends in Europe and the US. Click here for a copy of the conference slides.
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