Loan Market Overhaul Sought in Europe to Boost Liquidity, Growth

  • Post-crisis regulations blamed for wrapping loans in red tape
  • Lobby group says it's seeking to reduce settlement times

Europe’s loan industry is calling for an overhaul of regulations introduced since the financial crisis it says are hobbling liquidity and growth in Europe’s leveraged loan market.

The Loan Market Association is seeking to speed up loan trades that a survey last month showed take up to 10 weeks to complete. The industry group will discuss possible remedies at a conference in March with its American sister organization, the New York-based Loan Syndications and Trading Association, which has drawn up new rules for the U.S. market.

“Emphasis on faster settlement would mean both investors and issuers benefit,” said Srikanth Sankaran, a London-based head of European credit and asset-backed securities strategy at Morgan Stanley, an LMA member. It’s good for “investors because liquidity improves and for issuers because market depth increases.”

Settlement times for loan transactions in Europe are being held up by increased customer identity checks, transfer freezes, documentation processes and cross-border legal issues, according to Nigel Houghton, London-based managing director of the LMA, which lobbies governments for the primary and secondary syndicated-loan industry in Europe, the Middle East and Africa. While deals can take three weeks to complete in the U.S. an equivalent deal in Europe may take 10 weeks, according to a survey by Markit Group Ltd. 

New Guidelines

The U.S. group proposes penalizing investors who hold up trades, arguing that settlement delays exacerbate losses for money managers. The guidelines may be adopted by banks, law firms and other loan-market businesses by the second quarter, people familiar with the matter said earlier this month.

Total leveraged loan issuance in Europe for 2015 fell to 45 billion euros last year from 57 billion euros in 2014, according to data compiled by Bloomberg. Deals scheduled to begin this month total 6.23 billion euros, the data show.

“Why we need to reduce settlement periods, and introduce more certainty about settlement in the U.S. should absolutely apply in Europe,” said J. Paul Forrester, a partner at law firm Mayer Brown LLP.

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