LSTA’s Revised Trading Documents Allow Revolver Loan Investors to Protect Their Posted Collateral — But Only If They Ask

On June 28, 2013, the Loan Syndications and Trading Association (“LSTA”) announced that the revised Collateral Annex for Loan Participations and revised LSTA Par and Distressed Trade Confirmations became effective. The revisions to the LSTA’s suite of documents has improved the ability of investors in revolver loan participations to protect themselves against the lender of records’ insolvency risk. Investors face this risk when they are required to post collateral with the lender of record to support their obligations to fund the borrower’s future draws on the revolving loan under the participation agreement. The revisions to the LSTA’s documents include, among several other changes: (i) a check-the-box option that allows collateral to be segregated with the seller or a third-party custodian; (ii) a revised formula to calculate the amount of collateral required; and (iii) more frequent triggers for the seller to return any excess collateral.