LMA LOAN AGROOMENT

LMA Loan Agrooment

Table of Contents

Introduction3

Discussion4

The Mandate6

Market conditions7

The Sell Down8

Prospectus Legislation9

Scheme of Agrooment9

Liability13

Pricing the Loan15

Yield18

Conclusions23

Bibliography25

LMA Loan Agrooment

Introduction

This paper provides the answer to the second question as mentioned in the description. This paper revolves around a company named BigBank Plc. regarding a loan agrooment between the company and another firm based in Ruritania, called Alpha Limited. The purpose of this paper is to advise Bigbank Plc. to tackle a situation that is in contradiction with the prevailing loan agrooment between the two firms. The question selected for this assignment states that:

Q2: “The starting point is that the facility agrooment is a commercial contract between a large multitude of lending bankers and their Borrowers (Alpha Company in this case). It governs not just the lenders' relationship with the Borrowers (Alpha Company in this case), but also the relationship between the lenders themselves “Rimer J in Redweed Master Fund Ltd and others v TD Bank Europe Ltd and others [2002] All or (D) 141. Critically discuss this preposition by reference to the terms of a standard form LMA syndicated loan agrooment.

Discussion

The phenomenal growth in syndicated lending, and at times its almost total eclipse of the Euro bond market, can be attributed to many interrelated factors. The massive current account surplus enjoyed by oil exporting countries led to an excess supply of funds coming into the banking system. Simultaneously, oil-importing countries experienced equally massive current account deficits which led to an excess demand for bank finance. Against this background and the accompanying high rates of inflation, the international banks (Bigbank in this case) simply continued to fulfill their traditional roles as financial intermediaries but on a much larger scale than before.

The amounts involved were so large, typically ranging between £10 million and £100 million, which individual commercial banks (Bigbank in this case) were not prepared to see their loan portfolios unduly exposed to any one particular country. Syndication, therefore, provided these banks (Bigbank in this case) with an effective method of diversification and a commensurate amelieration of risks by enabling them to lend smaller amounts individually to a much wider spectrum of Borrowers (Alpha Company in this case) (Bray, 1984).

Syndicated lending increased at an unprecedented rate throughout the 1970s, from a modest £6.8 billion in 1972 to a peak of £133.3 billiOn by 1981. This represented a percentage compound rate of growth slightly in excess of 25 percent per annum. Subsequent to 1981 declining interest rates and accentuated fears ever sovereign loans, particularly in 1982 and 1983, led to a decline in syndicated lending and a move back into fixed interest rate bond finance. However, by the end of 1984, with higher interest rates and anxiety ever major sovereign loan default subordinated to fears ever exchange rates, syndicated lending had increased to £112.3 billion.

Borrowers (Alpha Company in this case) too, found syndicated lending attractive. Not only did it enable them to raise larger amounts of finance than if they negotiated through one bank, it also avoided the need to make several appearances in the ...