Loan Market Association

The Loan Market Association is a European body of banks and lenders.  It has developed the primary and secondary loan market in Europe through the provision of standard documentation for primary and secondary syndicated loan markets, the establishment of standard market practice, issue of guidance, education, training and lobbying.

It operates through a number of committees including its documentation committee which is comprised of lawyers and other participants who develop new market documents and revise existing documentation in the light of changes in law, tax and practice.

Loan market association documents are commonly used in respect of syndicated lending.  Investment-grade loans are loans to high rated borrowers which are capable of sale in the secondary market.  Leveraged loans are loans to other borrowers who are perceived to carry higher risk.

The LMA has published an investment-grade agreement, a leveraged facility agreement and a template for high-value syndicated lending.  The documents are revised and reissued from time to time.

Term Sheet / Commitment Letter

The mandate letter or commitment letter is issued by the arranger bank.  It agrees to use best efforts to raise the syndicated loan on terms set out.  On acceptance, the arranger bank will seek to arrange the relevant loan.

The term sheet is a non-binding statement of the commercial terms and conditions of the loan.  The facility agreement is based on it.  The facility agreement is the loan agreement.

Syndicated Loans

Syndicated loans are loans, typically high-value loans issued by a number of banks collectively.  The LMA has published a variety of documents for use in syndicated lending.

The agreement will contain provisions for the relationship between the agents, the lenders and the arranger, payments, administration and the mechanics of dealing with issues arising under the loan agreement.

There may be provision for replacement of obligors and by way of accession of a new borrower or guarantor and/or release of existing group entities.

Some Types

The leveraged facility agreement is designed primarily for a transaction involving acquisition finance, where there are also mezzanine or lower levels of debt and equity.  Commonly, the parent company establishes a subsidiary to acquire a target company.  The lender is granted senior security with priority over all other debt.

The leveraged facility agreement has most of the features of a loan agreement.  It will provide for conditions precedent.  It may provide for ancillary facilities.

A revolving loan may require to be reduced to a certain limit during a period of the year in accordance with the working capital cycle so that it does not become long-term debt. There may be ancillary facilities within the revolving loan facility dealing with specific requirements relative to the trade.

In more sophisticated transactions, there may be multiple loans involving facilities with different currency options and repayment terms.  A revolving loan provides for a maximum amount, typically, to deal with working capital requirements, which may be drawn down and repaid.  It may allow the issue of trade credit.

Deal Specific Terms

The terms of a loan facility will be specific to the transaction.  There will generally be a term loan or a revolving facility

The Schedules will set out the respective details of the lenders and their commitments.

The schedules will set out the conditions precedent.  They may include standard conditions precedent on corporate existence. There may be o due diligence reports on the target company reports, legal opinions, etc.

The interest rate provisions will be set out including the basic measure, the margin interest period and calculations.

There will be provision for repayment and there may be special provision for mandatory repayment in certain cases.

There may be provision for guarantors and security.

Security and Priorities

The transaction security documents are those creating security over assets of the borrower or third parties such as guarantors in respect of the obligations under the finance documents.  The finance documents are typically the loan agreement including related documents such as hedging documents in respect of interest or currency inter-creditor agreement.

The security is granted in favour of a security trustee.  Security may be granted for the benefit of the senior lenders and also the mezzanine lenders in accordance with the terms of priority.  This is defined in a priorities or inter-creditor agreement.

The inter-creditor agreement deals with relations between the senior creditor and junior lenders (such as a group company) who may be already in place.  It defines their respective rights in respect of repayment and enforcement.

Mezzanine finance ranks below senior debt and ahead of equity and ordinary creditors.  It will build in a greater rate of return to reflect the greater risk.  There may be a provision for the holders of mezzanine loans to have the right to acquire shares.



There will be provisions for representations, warranties and covenants.

The agreement will set out the events of default and the consequences.

There will be provisions dealing with assignment and transfers by the lenders.


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