In an effort to reduce settlement times, the Loan Syndications and Trading Association (the “LSTA”) recently revised its standard par loan trading documents to penalize buyers who take too long to settle. Beginning September 1, 2016, buyers who fail to fulfill their obligations to timely settle par loan trades will forfeit the right to receive interest that accrues prior to the settlement date. The changes do not apply to loans trading on distressed documents.

The LSTA’s revisions represent the trade group’s most aggressive step to combat settlement delays. The revisions are also the most consequential changes to the LSTA’s standard par trading documents in years.

Under the current version of the LSTA’s Standard Terms and Conditions for Par/Near Par Trade Confirmations (the “Standard Terms”), buyers are automatically compensated for interest that accrues on a loan during the period beginning on the seventh business day after the trade date up through the settlement date (“Delayed Compensation”). Starting on September 1, 2016, this provision will no longer be automatic. Instead, par loan buyers will only be entitled to Delayed Compensation if they satisfy several new requirements, including paying the purchase price to the Seller in accordance with specific timing requirements (the “Delayed Compensation Prerequisites”). The LSTA believes that the Delayed Compensation Prerequisites will create a new sense of urgency for buyers to close trades and discourage buyers from tying up sellers’ balance sheets. READ MORE →