Holders of bank holdings bear two types of credit risk: (i) non-payment of the underlying bank loan by the borrower (which also applies to an assignment); and (ii) the insolvency of the licensor of the participation or the inability of the licensor to fulfil its obligations under the participation agreement. A very important difference between LSTA documentation and LMA documentation, which affects the second part of such credit risk, is the structure of the form of the LSTA and LMA participation agreements. LMA-type equity interests create a debtor-creditor relationship between the licensor and the purchaser of the interest.26 In the event of the licensor`s insolvency, the participant is treated as an uninsured creditor of the licensor without having an economic interest in the underlying loan. Therefore, the underlying economic interest in the loan to which the licensor was granted is not considered to be part of the concessionaire`s estate.27 LSTA Distressed Sales is invoiced to the buyer on the basis of the provision of prior transfer contracts and the assignment to the buyer of all of the seller`s rights under such prior assignment contracts. To the extent that the recovery it received for the loan acquired by the buyer is affected by an act (or inaction) of a pre-seller in the chain, the buyer may, in LSTA`s emergency documents, appeal not only to its immediate seller, but also to a more distant former seller. While a buyer may need to be more diligent in managing an LSTA Distressed Trade compared to an LMA Distressed Trade by checking previous transfer documents, that buyer has recourse against any upstream seller who has sold the credits transferred on non-performing documents. July 13, 2020 – Here you will find the new publication of the LSTA Form of Master Confidentiality Agreement for Secondary Sales & Trading. The agreement sets out the conditions applicable to the processing of certain information disclosed by a party of the other party regarding the possible participation of the other party (or its related business) in a transaction with a borrower and all loans granted to those borrowers (and all claims against the borrower), as set out in a schedule. After signing the framework agreement, the parties can simply complete the schedule annexed to the contract by including the details of the loan envisaged by a potential buyer. If a party signs an LMA confirmation without modification of the standard conditions, this confirmation applies to all insurances, guarantees, insurances and agreements entered into by the seller or buyer, not only on the day of trading, but also on the date of settlement of the trade.
Therefore, where a commercial confirmation of the AML has been executed and an event occurs before the invoice date but after the trading date, prompting a party to request changes to the standard terms of the AML (given that standard AML insurance issued by that party from the settlement date is no longer valid without modification), this party may be in a vulnerable situation, to the extent that its counterparty is not willing: Allow changes to the standard conditions after the execution of the commercial confirmation. . . .