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ARTICLE · 02 JULY 2020

The Importance Of Settling On Distressed Documents As Default Rates Increase

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

Herbert Smith Freehills Kramer LLP

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As highlighted in our previous alert, "Bank Debt Investments: The Importance of Distressed Protections as Risks of Default Rates Increase,"

United StatesFinance and Banking
Thomas Janover
Thomas Janover
Andrew I. Ward
Andrew I. Ward
Joseph A. Satto
Joseph A. Satto
Erica D. Wolf
Erica D. Wolf
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Background

As highlighted in our previous alert, “ Bank Debt Investments: The Importance of Distressed Protections as Risks of Default Rates Increase,” the vast majority of U.S. bank loans that trade in the secondary market settle on either par or distressed forms published by the Loan Syndications and Trading Association (LSTA). The distressed forms offer significantly more protection for buyers of bank debt, including representations, warranties and indemnities specifically designed to guard against certain credible risks inherent in a restructuring or a bankruptcy proceeding. In light of the recent credit impact of COVID-19 and the related market turmoil, credits that have been trading on par documents now may be sufficiently stressed that investors should consider the advantages of settling trades with the protections provided by the distressed forms. This alert sets forth key differences between the LSTA Distressed and Par Secondary Trading Documentation.

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