Competition time - syndicated lending | Fieldfisher
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Competition time - syndicated lending

14/04/2015

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United Kingdom

If you don't play nice and fall foul of competition law, you could be personally, even criminally liable. We can help you to understand and manage your risk.

The LMA has been reasonably active in the past 12 months highlighting competition law (both UK and EU) risk when it comes to syndicated lending.  A 2014 guidance note and recent updates to the pro forma Mandate Letters and Confidentiality and Front Running Letter for Primary Syndications Letters seek to address some of the concerns.  BUT it is not enough just to use these blindly - as an arranger, agent, security trustee or syndicate member, you need to know how to behave and how not to behave.  If you don't play nice and fall foul of competition law, you could be personally, even criminally liable.  We can help you to understand and manage your risk.

What is the risk?

That potential or actual syndicate members (be they lenders, arrangers, agents or security trustees etc) act in a way which is deemed to be anti-competitive – if found in breach (either as a result of investigation by the authorities or through a direct complaint by a borrower), the institution and individuals involved could be the subject of heavy fines and/or criminal sanction (including imprisonment for the individuals concerned)

What sort of activity does this cover?

The blatant stuff, for example: when there is agreement between syndicate members to fix prices, share markets/customers, rig bids and fix/limit capacity.

But note that the sharing of certain information between syndicate members such as:

  1. commercially sensitive price information (margin, credit terms, fees etc)
  2. lender cost information (as this could inform on price information)
  3. other confidential information (the subject of the usual "confi" letters)

could potentially fall foul of competition law.

In which areas is this mostly likely to be a danger?

The general areas where this applies:

  1. where information is shared or used (e.g. when taking market soundings)
  2. when bidding for mandate/lender tenders
  3. when receiving unsolicited competitive research
  4. when syndicate members interact in relation to flexing terms
  5. when lenders and/or administrative parties have discussions in or around refinancing and/or distress/restructurings

How do we protect ourselves?
  1. Seek, record and keep borrower consent to sharing of information before discussions with other lenders or potential syndicate members. 
  2. ALWAYS make sure this paper trail is there
  3. LMA documentary updates go some way to address this but that there is no LMA market standard documentation for one of the riskiest parts of a syndicated deal, namely the initial contact between a potential arranger and a borrower – make sure you have the requisite protection in early stage documentation (we can help – see below)
  4. Seek legal advice if required, whether this be for current or past situations (we can help – see below)
  5. implement appropriate compliance measures (we can help – see below)
  6. train your staff – make sure they behave appropriately in communications, both verbal and written (we can help – see below)
  7. DO NOT discuss pricing or future commercial strategy in relation to a particular borrower with other actual or potential lenders

 

Let us help you

We at Fieldfisher can help you both with the general law relating to competition and in relation to your syndicated lending transactions.  In particular:

  1. we can provide you with practical guidance as to how you and your staff should behave, for example either through helping you write your competition law compliance policy, or more importantly, providing training and guidance on what originators, distributors, agents etc should think about and do in their daily work
  2. we can help you with the wording which should go into your "pre/post LMA" documentation at the point in time you are courting potential borrowers and/or refinancing or discussing situations of borrower distress
  3. we can advise you in a dawn raid scenario if the competition authorities call on you
  4. we can advise you if you have any concerns over past behaviour.