The secondary loan market has grown over the last decade as financial institutions use it to distribute risk, generate new revenue streams and manage problematic credits and balance sheets. The Loan Syndications & Trading Association (LSTA) in New York and Loan Market Association (LMA) in Europe have responded. And on January 25 the LMA launched its revised secondary trading documentation. This has not changed the fundamental principles and mechanics of the debt trading documentation and process, but it streamlines them and reflects changes in market conditions.
Under previous documentation, users would have to select the applicable documents depending on whether the trade was par or distressed. The new documentation introduces a combined set of terms and conditions (with representations and warranties incorporated) and a single trade confirmation for both par and distressed trades. In general terms, the terms of par transactions will move closer to the previously published distressed documentation. This...