Debt buybacks row rages, LMA to negotiate

US AND magic circle partners are continuing to debate the issue of debt buybacks as the Loan Market Association (LMA) prepares to amend its documentation.

The LMA said it will amend its primary facility agreements to provide options for the lender and borrower to negotiate whether debt buybacks should be permitted.

The association says buybacks should adhere to the principle of treating all lenders equally, rather than selecting particular lending banks for a transaction.

Kirkland & Ellis finance partner Stephen Gillespie said: “I don’t follow the LMA’s statement that it’s a fundamental principle of syndicated lending that all lenders be treated equally by the borrower. That is a self-serving gloss intended to justify a proposed interference with the doctrine of freedom of contract which underlies English commercial law.”

Earlier this year (7 April) The Lawyer uncovered the debate in the UK legal market over the legality of a borrower buying back their debt at a below-par rate.

Magic circle partners say the LMA’s plans to produce amended documentation could provide much-needed clarity in the syndicated loan market.

Linklaters banking partner David Ereira said: “The truth is there have been a significant amount of deals where sponsors and their related funds have sought to buy debt and I doubt this will change. What’s good about what the LMA is doing is that it’s providing guidance on borrowers doing deals and giving some clarity that the issue is fundamentally a commercial rather than a legal one.”

The LMA drafting will take account of issues such as debt buyback, the cash that the borrower is permitted to use, and voting rights.