May 26, 2020 - The LSTA today issued the following statement regarding the ruling last Friday, May 22, by  Judge Paul Gardephe of the Southern District of New York that a syndicated term loan was not a “security” under state securities laws. 

Elliot Ganz, General Counsel and Chief of Staff for the LSTA, said, “The ruling is a victory for the flow of capital to American businesses. Declaring syndicated term loans to be securities would have upended the expectations of borrowers and lenders and wreaked havoc in the large, and vitally important, market for those loans. We are pleased that Judge Gardephe declined to go down this path.”

As the LSTA noted in its amicus brief in Kirschner v. J.P. Morgan, and as Judge Gardephe confirmed, under the tests established by the U.S. Supreme Court and the Second Circuit Court of Appeals broadly syndicated term loans such as the one at issue in Kirschner are not securities.  Judge Gardephe recognized that the relatively narrow plan of distribution (which excludes natural persons), the settled expectations of market participants that term loans are lending transactions, not securities, and the existence of another regulatory scheme (i.e., the supervision of the federal banking agencies) weigh in favor of finding that the term loans are not securities.  This decision is consistent with the LSTA’s long-held view that participants in this market are sophisticated institutions that decide based on their own due diligence to lend large sums of money to a particular borrower. Nearly $1.2 trillion in syndicated term loans are now outstanding and such loans play a critical role in the American economy.

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