April 17, 2019

EU Study on Loan Syndication

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On April 5, 2019, the European Commission (“Commission”) published its study on “EU loan syndication and its impact on competition in credit markets”. The study identified several areas in which syndicated loans can give rise to competition concerns (partly, even as potential restrictions by object), namely (i) exchange of sensitive information between lenders; (ii) provision of ancillary services by banks participating in the syndicate; (iii) combination of advisory and debt arranging services; and (iv) refinancing situations. With a view to these sensitive areas, the study describes potential mechanisms which aim at avoiding or at least decreasing the risk for lenders of committing antitrust infringements.

Grounds for Study
Syndicated lending plays a significant role in the context of large M&A and finance transactions. By grouping together, financial institutions increase their ability to offer larger loans while also reducing their individual risks. At the same time, the very fact that competing financial institutions cooperate and form consortia can increase the risk of anti-competitive conduct. Against this background, the Commission had announced in February 2017 to launch a study into potential competition issues in loan syndication.

Scope and Approach of Study
The results of the study are mainly based on the analysis of two specific segments of the syndicated loan market in a set of six selected EU Member States. The specific segments are Leveraged Buy-Outs (“LBOs”) on the one hand and Project Finance and Infrastructure Finance on the other hand. The Member States evaluated – the UK, Germany, France, Spain, the Netherlands and Poland – are the most significant in terms of the locations of borrowers, lenders and investors. Together, they account for three-quarters of the syndicated lending in Europe.

The study assesses different stages of the syndicated loans process in light of the legal framework of Art. 101 and 102 TFEU and identifies both existing competition risks and possible safeguards for each of the stages. The stages examined are (i) bidding process for appointing individual banks to the lead banking group; (ii) post-mandate to loan agreement; (iii) allocation of ancillary services across banks and the pricing of such services; (iv) use of debt advisors which are also involved in the syndicated loan; (v) coordination by lenders on the sale of the loan on the secondary market; and (vi) refinancing in conditions of default.

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