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Sunday, May 28, 2023

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Loan Market Association issues model provisions for sustainability-linked loans

The Loan Market Association (LMA) has issued model provisions for sustainability-linked loans (SLLs) to provide a proposed form of draft SLL provisions to insert into LMA loan documentation. The models aim to help lenders, corporates and advisors structure SLLs efficiently and scale sustainable finance solutions.

“The inherent flexibility of the SLL, being sector and jurisdiction agnostic, means it is the perfect tool to help drive this transition forward. We therefore hope that the launch of these model terms will provide a useful tool to borrowers and lenders alike to increase the uptake of the SLL product and aid discussions, new and old, going forward,” Gemma Lawrence-Pardew, the head of sustainability and director at the LMA, commented.

The model provisions are envisioned as a basic drafting framework to aid in the negotiation of SLL documents in the market and include drafting notes which set out points for the parties to consider when undertaking an SLL transaction.

According to Sukhvir Basran, a partner at the LMA’s drafting law firm for this project, Cadwalader, Wickersham & Taft, the model terms will continue to drive the growth of sustainable finance and open SLL products to newcomers to the market.

The SLL model provisions follow the LMA’s publication of the revised Sustainability-Linked Loan Principles (SLLP) and Guidance to the SLLP on the 23rd February this year in conjunction with the Asia Pacific Loan Market Association and the Loan Syndications and Trading Association.

The revised documents, which came into effect on the 9th March this year, notably tightened its requirements for sustainability performance targets (SPTs) to be beyond the regulatory required targets in the jurisdiction.

While the new guidelines have set a higher standard for SPTs, they provides a level of flexibility for SLLs which have not set SPTs at the time of the origination of the loans, or ‘sleeping SLLs’. This can occur in time-pressed deals where an SLL mechanism is agreed upon but the SPTs have not been set.

According to the revised guidelines, sleeping SLLs can be labeled as an SLL if the SPTs are agreed upon or switched on within 12 months of the loan origination.

The LMA’s various principles and guidelines have been adopted in several Islamic financing and Sukuk facilities. Notably, nogaholding’s standby facility is being prepared based on the LMA’s SLLP with added bespoke terms.

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