August 31, 2021 - The LSTA has learned recently of deals in the U.S. loan market that depart from the LSTA participation structure, and therefore, has drafted a Market Advisory reminding our members about the important benefits of the LSTA’s structure and the risks of departing from it.  

As discussed in the Advisory, the LSTA participation structure has been drafted to help ensure that the participation is a “true participation” which is afforded sale accounting treatment. Departing from the LSTA form language risks the participation being found to be an unsecured financing arrangement between seller and buyer. The LSTA, therefore, recommends that all members carefully review the participation clause included in the “Successors and Assigns Provision” of New York law governed credit agreements and be aware that adding unique terms (e.g., stating that the relationship between the seller/grantor and buyer/participant is that of debtor and creditor) risks a participation not qualifying for sale accounting treatment.

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