What’s New in the LSTA’s Updated Revolving Credit Agreement?

Introduction and Process

The Loan Syndications and Trading Association was formed more than twenty-five years ago, and since that time its mission has been to create a fair, orderly, efficient, and growing corporate loan market that provides leadership in advancing and balancing the interests of all market participants. As part of that core mission, the LSTA’s legal team works to standardize agreements that are typically used by loan market participants. Over the years, the LSTA’s suite of documents has grown, and it currently stands in excess of 200 documents, all of which are available to members on the LSTA website.

The agreements in that library must, of course, periodically be updated to reflect the latest legal, regulatory, and market trends and developments. At times, the LSTA staff initiates a project to create or update one of the LSTA’s forms, and at other times, ideas percolate up from members. That is how the project to update the LSTA 2017 Form of Revolving Credit Agreement (the “Revolver”), which includes a letter of credit subfacility, arose. Once an idea is approved as a new project, the LSTA then works with one of its committees, comprised of interested members, to create or update a form. The process is typically lengthy because all members have a voice in the project. Once the committee has agreed to the draft, it is circulated as an Exposure Draft to all individual LSTA members (currently, about 25,000 people). At that stage, no substantive comments are expected, but often numerous questions about the form are submitted to the LSTA. After about approximately six weeks, the draft agreement is then published in final form.

Antitrust Concerns

As the LSTA is a trade association, LSTA staff are very aware of antitrust concerns as they work with members, many of whom are competitors in the loan market, to develop a new form, because the courts have deemed trade associations to be possible “hotbeds of conspiracy.” The antitrust laws are designed to ensure that business is conducted in an open, competitive atmosphere and that competition is not unreasonably restricted. The challenging aspect of complying with antitrust laws is that the general language in which the statutes are written does not specify the exact conduct that would be considered a violation. When the LSTA works to create a new form for members, it is well aware of these concerns and always bears them mind as the consensus-building process gets underway.

New members often query how we can create and agree on new forms without violating the antitrust laws. LSTA members are permitted to negotiate and even ultimately agree on the language in a finalized LSTA form and view the published language as acceptable. However, they are always free to negotiate that form for their individual deals. That is the key distinction, and that is why we can successfully standardize language and agreements for the market and not violate antitrust laws.

The Updated Revolver Letter of Credit Subfacility

The 2017 Revolver was the first complete credit agreement published by the LSTA. The real impetus to update that form came from an LSTA member who was also Chair of the American Bar Association Business Law Section’s Letters of Credit Subcommittee. Working closely with him and other LSTA members, the LSTA was able to agree on certain letter of credit–related modifications to the form. At the April 2022 CLE program on this topic presented at the ABA Business Law Section’s Hybrid Spring Meeting (soon to be available for viewing as on-demand CLE), the panel explained the background as to how letter of credit subfacilities came to be included in syndicated revolving credit agreements and reviewed the modifications. Among other things, the modifications address a greater recognition of the role of the Issuing Banks as distinct from the Administrative Agent, Swingline Lenders, and Lenders, and emphasize the independence of letters of credit as separate from the credit agreement and other loan documents. The letter of credit–related modifications also include clarification of the availability of letters of credit for subsidiaries of the main borrower and provide express mention of the separate entity or branch separateness doctrine that treats branches of banks as if they were separate legal entities for certain purposes, including with respect to letters of credit.

LIBOR SOFR Transition

In addition, the LSTA form includes very important modifications to reflect the termination of LIBOR and the adoption of Term SOFR in the loan market. The form includes various options to allow for usage of spread adjustments for Term SOFR, when applicable and selected. Drafters have provided new definitions of Term SOFR and changes to operational provisions to reflect the rate change. Standard yield maintenance provisions, such as the breakage indemnity, increased cost provision, inability to determine rates section, and illegality provision, have been updated as a result of the usage of Term SOFR. Finally, the Term SOFR–referencing form includes updated benchmark replacement language (in the unlikely event that Term SOFR ceases or becomes non-representative).