March 12, 2019 - On March 6th, the LSTA and LMA jointly hosted the annual US and European Loan Markets conference in London with about 430 delegates in attendance. After attendees were welcomed by Clare Dawson of the LMA and Bridget Marsh of the LSTA, Ian Stewart of Deloitte delivered the global economic perspective. With recession risks mounting for 2020, Central Banks are cautious about further rate hikes, and the audience was reminded that, although Brexit is a huge story for the UK, it is not globally systemic. During the primary market panel moderated by the LSTA’s Bridget Marsh, Jeremy Selway of Deutsche Bank provided European loan market color throughout the session, noting that the volume of leveraged loans issued in the European loan market exceeded $200B in 2018. Geoff Peck of Morrison & Foerster shared both the US and European middle market perspectives, and Josh Tinkelman of Latham & Watkins offered the borrowers’ and sponsors’ reasoning during the discussion. Shafiq Perry of HSBC and Kepler Geertsema of Citibank highlighted areas that continue to be heavily negotiated and of particular interest to parties. Perry noted that, in today’s borrower friendly market, borrowers continue to seek and win terms permitting expansion of future debt capacity with parties’ focused on the size of the incremental facility and what controls will be given to the existing lenders, and Geertsema highlighted how European sponsors have a growing interest in securing and exercising greater control over loan transfers and who is permitted into the syndicate. Steve Miller of Covenant Review, a Fitch Solutions Service, provided helpful analysis on incrementals and MFNs, covenants, and trends in EBITDA adjustments throughout the session. During the direct lender fireside chat, Thomas Mellor of Morgan Lewis led the discussion with Gordon Brothers Finance Company’s Larry Klaff and Peter Jaffe who shared their perspectives for both European and US direct lending. Direct lenders are clearly influential players in the loan market who aren’t afraid to say “no” and thus often receive better terms than those to which borrowers typically agree – at least today – in the institutional market. The discussion then turned to one of the newer loan market developments – sustainable lending. The panel session was moderated by Clare Dawson of the LMA and panelists included representatives from the global loan markets: Mark Betteridge of Bloomberg, Lucie Campos Caresmel of CACIB, Peter Ellemann of ABN AMRO, Roland Mees of ING and Tess Virmani of the LSTA. It was clear from the panelists that the moment for sustainable lending has indeed arrived. Focusing on the continued growth being observed in the global markets, the panel indicated that sustainability-linked loans would likely be the area of most growth. The US has seen two sustainability-linked loan deals in 2019 – Prologis and Xylem – which are general corporate purpose revolvers whose pricing is tied to sustainability targets, and it is precisely because of the potential of this product that the LSTA, LMA and APLMA are continuing their global effort in sustainable lending with a soon-to-be published framework outlining the key features of a sustainability-linked loan. It is believed that the Sustainability Linked Loan Principles, when published, will be an important complement to the existing global framework for green loans. With only a few weeks left before Brexit, James Gledhill of Citibank and Peter Bulbrook of Santander explained that banks have been preparing for a “No Deal” Brexit for three years and highlighted that regulators would likely be more interested in regulating new deals rather than legacy deals when work resumed on April Fool’s Day and that from then onwards the loss of passporting rights will leave UK firms with no greater access rights to EU27 clients than non-EU 27 firms. Elizabeth Leckie of Allen & Overy reminded delegates that addressing passporting concerns for lenders and agents, bail-in recognition provisions, and governing law of credit agreements were simply a few of the considerations for the loan market after March 29th. David Chmiel of Global Torchlight delivered the afternoon keynote address, highlighting the 2019 geopolitical issues that loan market participants should be focused on, amidst the challenges of doing business in a multipolar world and one in which traditional alliances are becoming unstuck. Delivering a TEDx style talk, Dr Lee Braine, Chief Technology Office of Barclays, considered the impact which quantum computing, technology based on the concepts of quantum theory, will have on banking and managers’ investment decisions and risk assessment; banks must know about this technology and its possible threats and be ready to implement it. Kam Mahil of the LMA and Tess Virmani of the LSTA gave an update on where transition efforts stood with respect to replacement benchmarks. Ultimately, the two urged delegates not to be complacent, but reassured them that the relevant jurisdictions have organizations comprised of private sector and public sector members which are working very diligently at spearheading these efforts to ensure an orderly transition. The sanctions panel with, Richard Burke of White & Case, Ben Carroll of Linklaters and Kuang Chiang of Allen & Overy, continued with the sanctions theme from David Chmiel’s earlier discussion and discussed how governments, including the Trump administration, are using it as a political tool. The afternoon concluded with competition law experts, Rod Carlton of Freshfields, Michael Lacovara of Latham & Watkins and Philip Mansfield of Allen & Overy, highlighting how regulators in the US and Europe are focusing more on different stages of the syndication process, including information exchange, activities during allocation, and hung deals. I would like to thank all our speakers for their truly exceptional presentations; every session was thought-provoking, engaging, and expertly delivered. The master slide-deck for the Conference may be found here.
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