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New to fund finance or know someone who is? Here’s an updated guide to primers we’ve previously published in Fund Finance Friday.
As interest rates rise and a potential recession looms, we’ve seen a flight to quality as new entrants seek to participate in our fund finance market. While most deals on our books have just one lender and one fund as borrower, multi-lender facilities have historically provided outsized loan commitments. To wit: of the nearly 900 new deals and rebooking amendments our U.S. fund finance team did last year, only 8% were syndicated on initial close. Yet of the almost $200 billion of lender commitments in our U.S. portfolio during that time, almost two-thirds came from syndicated credit facilities. A significant part of that disparity comes from new lenders joining deals after origination. We expect that trend to continue. This article assesses the elements, issues and hot topics for bringing new lenders into a transaction from the perspective of the borrower, the administrative agent and the incoming lenders.
As we near the close of the second quarter, eagerly look forward to next week’s 6th Annual FFA European Fund Finance Symposium in London and keep a watchful eye on the macroeconomic environment, we thought it would be helpful to provide an update on 2022 market activity based on our observations.
The LIBOR transition process continues to roll along. New transactions are (mostly) being closed without using LIBOR any more, and many legacy transactions are naturally transitioning when refinanced or renewed this year. However, a significant portion of the legacy loan market remains that will require active transition at or before LIBOR cessation on June 30, 2023. In order to help members think through the process, the LSTA has produced and distributed a series of amendment forms that may be used by market participants as part of the LIBOR transition.
Lots of news out of the loan market. SOFR remains a focus, we have new forms from the LSTA, and what has been deemed an “existential threat” to the syndicated loan market has reared its head once again. Here’s the rundown.
In the days leading up to the closing of a credit facility, it is not uncommon for the administrative agent to ask each lender a simple question, “do you need a note?” For many lenders, the response is in the affirmative, but such an answer sometimes seems to be given out of instinct and without a thorough contemplation of the potential headaches that are being obtained. An understanding that the note may need to be amended, must be retained for future return to the borrowers, and may impose taxes that could change the direction of future responses.
As we usher in spring and hopefully finally say goodbye to the worst of the COVID-19 pandemic, deal volume and overall market activity remain extremely robust. With less than a week to go in an eventful first quarter, we’re seeing sustained growth in fund finance despite broader market uncertainties and geopolitical risk. Here are a few updates as we head into Q2.
Our topic today is breakage costs (also called “break funding” costs) in your new SOFR credit agreements. Someone in the market recently asked: “I have a friend (OK, it’s me) who’s negotiating a credit agreement. We received comments regarding the old LIBOR break funding provisions. How do I explain what’s relevant in our new SOFR-only world?” The short answer to your friend is that both Term SOFR and Daily Simple SOFR may have breakage costs (although the breakage costs for an overnight rate like Daily Simple SOFR would likely be less than the breakage costs for Term SOFR, which is a tenored rate).
The Russian invasion of Ukraine brought sanctions to the forefront in the past week, with significant compliance implications for financial institutions and a minor update to fund finance credit agreements. Specifically, the “Sanctioned Country” defined term in our form credit agreements has been updated to include the regions referred to as the Donetsk People’s Republic and the Luhansk People’s Republic, formal recognition of which by Moscow triggered the application of comprehensive territorial sanctions earlier this week. The real work, as Cadwalader’s James Treanor points out in a Law360 article yesterday, will be the internal processes at financial institutions to identify and stop processing prohibited transactions involving newly sanctioned Russian banks and other entities and individuals targeted by the United States and other countries.
The FFA brought together over 800 investors, fund managers, bankers and lawyers for the 11th Annual Global Fund Finance Symposium last week in Miami. To kick off the final day of the conference, Natasha Puri (Lloyds Bank) was joined by Sekou Kaalund (JPMorgan’s Corporate and Investment Bank) for a keynote discussion on Diversity in Fund Finance.