February 26, 2020 - March is about to get a facelift as “Primary Delayed Compensation (“PDC”) Protocol Goes Live Day” joins International Earth Day, St. Patrick’s Day and the First Day of Spring.  The exact date of the roll-out will be determined once the banks’ testing of the new ClearPar functionality is completed.  This is a BIG change for our market. Are you “Ready”?

To be candid, the goal of the Protocol is not to have arrangers pass interest and fees to investors for unsettled allocations but rather to bring investors into the deals quickly thereby reducing settlement times for secondary trades. The Protocol, as it relates to Primary Allocations, will apply when the Seller, Admin Agent and any other Entity (other than the Borrower and any Affiliate of the Borrower) that must consent to the transfer of the Facility pursuant to an Assignment Agreement, are either the same Entity or Affiliates.  In order to earn compensation for primary allocations, the Buyer must be onboarded and approved as a counterparty by both the Seller and the Administrative Agent on the Ready Date (aka Trigger Date +3 Business Days (BDs) for a Pre-Trigger Allocation or Post-Trigger Allocation Date +3 BDs for a Post-Trigger Allocation).

Today primary allocations don’t allow Buyers to earn delayed compensation.  In addition we have Early Day Trades which are entered into on or before the Trigger Date (typically the date the facility funds) plus 6 BDs.   Thereafter trades are regular secondary trades. The Protocol will add two types of primary allocations to which delayed compensation will apply: Pre-Trigger Allocations and Post-Trigger Allocations. It will also include two additional types of “Early Day type Trades”:  1) Pre-Trigger Trades that occur on or before Trigger Date plus 1 BD for a Facility that was previously allocated pursuant to a Pre-Trigger Allocation and 2) Post-Trigger Trades that occur on the Post Trigger Allocation Date or the following BD for a Facility that was previously allocated pursuant to a Post-Trigger Allocation. Going forward, a trade will be considered to be a Secondary Trade if it is entered into (i) on or after the Trigger Date +7 BDs for a Facility that was not allocated pursuant to the Protocol, (ii) on or after Trigger Date +2 BDs when it relates to a Facility that was allocated pursuant to a Pre-Trigger Allocation and (iii) on or after the Post Trigger Allocation Date +2 BDs when it relates to a Facility that was previously allocated pursuant to a Post-Trigger Allocation.  These nine categories, together with applicable Ready Dates and Commencement Dates that describe when delayed comp begins to accrue, are reflected in this “cheat sheet”, which should be laminated on the desks of all loan market participants.

In order to be entitled to compensation, the Buyer is obligated to sign a confirm and assignment agreement and note that it is ready to settle by the Ready Date. But Sellers and Admin Agents did not escape the Protocol without responsibility.  They must submit to the ESP (i) either the draft Credit Agreement or Amendment OR the description of the Credit Agreement, Deal and Facility CUSIPs, legal name of the Borrower, Facilities, Seller and Admin Agent, together with MEI of Seller and Admin Agent, required for deal setup, (ii) a substantially final execution version of the Assignment Agreement and (iii) the effective date of the Credit Agreement/Amendment and Funding Date each by specific dates set forth in “Primary Delayed Compensation – Delayed But Not For Long”.  Be sure that you complete a Master Registration Letter with CUSIP Global Services if you have not previously applied for CUSIPs.

For further details, please see: Primary Allocation Confirmation, Standard Terms and Conditions for Primary Allocations and Standard Terms and Conditions for Par/Near Par Trades. If you have questions please contact ehefferan@lsta.org.

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