Syndicated Loan Market

Loan Syndications and Trading Bram Smith – bsmith@lsta.org (Executive Director)

Elliot Ganz – eganz@lsta.org (General Counsel)
LSTA member distribution

0

255075

100125

Institutional Investors Banks Law Firms Service Providers

2

The Loan Syndications and Trading Association is the trade association for the floating rate corporate loan market. The LSTA promotes a fair, orderly, and efficient corporate loan market and provides leadership in advancing the inte

of all market participants. The LSTA undertakes a wide variety of activities to foster the development of policies and 

market practices designed to promote just and equitable marketplace principles and to encourage cooperation and coordination with firms facilitating transactions in loans and related claims. 

LSTA member firms
U.S. Corporate loan market is a vital source 

Of capital for American business 

 According to government data, the U.S. syndicated loan market totals roughly $2.5 trillion 

lines and outstanding loans

 The committed lines are loans in the form of revolvers – they can be drawn, repaid, draw It is a key source of financing for many large and middle market companies in the U.S. Over one-third of outstanding loans are held by non-banks; half of those are held by CLO

U.S. Corporate loan and loan commitments outstanding

Commits/outstandings ($Bils.)

Source: Shared National Credit Review

U.S. Corporate loans out
U.S. syndicated lending volume

Loan volume ($Bils.)

Source: ThomsonReuters LPC

U.S. syndicated lending volume

 Investment grade loans are often undrawn revolvers that backstop commercial paper pro

companies like IBM; they are held almost exclusively by banks.

 Non-investment grade (or leveraged) loans often include revolvers (drawn or undrawn) an

more term loans; they are often used to fund mergers and are held by banks and non-ban
How a syndicated loan works

(Continual engagement between agents, borrowers and 

U.S. Company

Bank

Mutua

l Fund

Ins

Co

Hedge

Fund

Agent 

Bank

Mutua

l Fund Mutua

l Fund Mutua

l Fund Mutua

l Fund Mutua

l Fund Mutua

l Fund Mutua

l Fund

CLO Hedge

Fund Hedge

Fund Hedge

Fund Hedge

Fund Hedge

Fund Hedge

Fund Hedge

Fund

Ins

CoIns

CoIns

CoIns

CoIns

CoIns

Co

Bank

Bank

Bank

Bank

Ba

B

CLO

CLO

CLO

CLO

CLO

CLO

CLO

CLO

•Information (at close, qtrly)

•Request for funds

•Request for amendments

•Interest/principal pmts •Funds

•Request for information

•Amendment waivers
Types of “institutional” investors

2010 primary investors in institutional loans

Source: S&P/LCD
Loans trade in the secondary

 Loans trade by assignment or participations Due to broad language, some participations might be considered swaps under Title VII

Annual loan trading activity 

Trading volume ($Bils.)
Loans can trade by either assignment or partici

Assignment

Borrower

Lender of Record 

(Assignor)

Lender of Record

(Assignee)

Loan Agreement

Payments on loan Payments on loan

Participation

Borrower

Lender of 

Record (Grantor) 

Future funding on loan

Payments on loanCertain voting rights on loan

Loan Agreement Participation Agreemen

Payments on loan
LCDX PRODUCT
What is Single-Name LCDS?

 CDS: contract where two parties exchange the credit risk of a Refere LCDS: CDS tailored to loan market (Deliverable Obligations = secure If a “Credit Event” occurs in respect of specified “Reference Entity”, P

Buyer will have the right to settle the contract (physical vs. cash settl

Premium

Credit Risk

Contingent Payment upon Credit Event of Reference Entity

Reference Entity

Protection 

Buyer

Protection 

Seller
What is LCDX?

 Portfolio of 100 equally weighted single-name LCDS contrac

representing Reference Entities with most liquid US first lien 

 Reference Entities selected by active dealers, index “rolls” ev

months to ensure most liquid names are included

Credit Risk

Contingent Payment on 1% of notional upon Credit Event of any 

Reference Entity in the index

LCDX Seller

(Protection 

Buyer)

LCDX Buyer 

(Protection 

Seller)

Premium

100 equally weighted Reference Entities

LCDS LCDS LCDS LCDS LCDSLCDS LCDS LCDS LCDS LCDS

Premium

LCDS LCDS LCDS LCDS LCDSLCDS LCDS LCDS LCDS LCDS
LCDX Key Terms: Credit Events

 Credit Events: Settlement on notional amount re

single Reference Entity in the index is triggered ithe following events occurs with respect to that e

 Bankruptcy of the Reference Entity Failure to Pay: Failure to make payments in excess of $

Borrowed Money obligations

 Includes bonds and loans Takes into account any applicable grace period 
LCDX Key Terms: Deliverable Obligations

 Limited to Secured Loans

 Loans must meet the definition of 

“Syndicated Secured

to be deliverable

 Syndicated Secured means an obligation 

 (i) that arises under a syndicated loan agreement and  (ii) that, on the relevant day, 

“trades as a loan of the Desig

Priority

” under the then-current trading practices in the pri

secondary loan market, as the case may be

 LCDX Designated Priority = First Lien Poll of active LCDX dealers determines which loans are 

“Syndicated Secured

”
LCDX Key Terms: Settlement

 Auction cash settlement

 LCDX dealers determine whether to hold an auction an

list of Deliverable Obligations

 Auction occurs on one day and determines single price 

Deliverable Obligations

 Physical settlement component enables interested parties to phy

loans 

 All outstanding LCDX contracts cash settle at Auction P

 Protection Seller pays 100% minus Auction Price multiplied by re

notional amount (1% of total notional)

 Physical Settlement Fallback: Protection Buyer d

Deliverable Obligation in exchange for par paym