It is now almost a year since the Loan Market Association (LMA) was formed and it has recently launched its standard forms for secondary trading of par loans.
There are parallels with the early swaps market. "At the inception of the swaps market, transactions were made over the telephone but subject to documentation which could take weeks to complete," says Michael Bray who, with fellow Clifford Chance partner Mark Campbell, is currently drafting the code of practice for the LMA. "This was an unsatisfactory situation given the sensitivity of a swap transaction to overnight changes in market conditions. Hence the need to standardize the documentation. A similar situation existed in the secondary loan market prior to the LMA. Deals were, and still are, being entered into subject to documentation which can then take months to complete. Perhaps the transactions are not quite so sensitive to market changes but nevertheless this is not a satisfactory situation."
That's where the analogy ends. In the swaps market it was comparatively simple to establish standard documentation. But loan agreements are flexible, and therefore complex, instruments and so the job of standardizing the mechanism and documentation for transferring interests under them is that much harder.