GTR speaks to Amelia Slocombe, senior associate director, and David Ansara, associate director: Africa, at the Loan Market Association about the benefits of standardised loan documentation for the syndicated loan markets in Africa.
GTR: What is loan syndication and how extensively is the loan product used in Sub-Saharan Africa?
Ansara: With interest rates in the developed world at all-time lows, lenders searching for yield have increasingly turned to emerging and frontier markets in Africa for investment opportunities. Syndicated loan facilities, where two or more institutions contract to provide credit to a particular corporate or group under one set of terms and conditions, is a relatively under-developed product in Africa’s debt markets, which until recently were characterised mostly by bilateral lending.
GTR: What is the role of the Loan Market Association in Africa?
Slocombe: The Loan Market Association (LMA), the voice of the syndicated loan market in Emea, seeks to promote liquidity, efficiency and transparency in the regional African loan markets and reduce barriers to entry for new participants. With these objectives in mind, the LMA has recently published a comprehensive suite of standardised legal documentation for use in syndicated loan transactions in various African jurisdictions, including South Africa, Kenya, Nigeria, Tanzania and Uganda (the LMA African Documents).
GTR: What do the LMA’s African Documents consist of?
Slocombe: The African documents can be divided into two principal categories: a suite of documents governed by South African law, and a single facility agreement for use in Kenya, Nigeria, Tanzania and Uganda (to be amended as appropriate for the relevant jurisdiction).
There are currently four forms of South African law document: 1) a single currency unsecured term facility for multiple borrowers and guarantors; 2) a single currency unsecured term and revolving facility for multiple borrowers and guarantors; 3) a single currency unsecured term facility for a single borrower and multiple guarantors; and 4) a single currency unsecured term and revolving facility for a single borrower and multiple guarantors (the South African Documents).
The facility agreement for use in Kenya, Tanzania, Uganda and Nigeria is a single currency secured and unsecured term facility agreement for multiple borrowers and guarantors (the East African and Nigerian Document).
GTR: How did the LMA’s African Documents come about?
Ansara: Whilst the South African Documents were originally produced by the African Loan Market Association (the ALMA, with which the LMA integrated in January 2014) and then adapted so as to be consistent with LMA language and boilerplate, the East African and Nigerian Document was a project begun by the ALMA, but finalised and brought to fruition by the LMA.
Slocombe: Both the South African Documents and the East African and Nigerian Document were begun in response to demand from the syndicated lending market in the local region which felt that, given the increase in local domestic syndication, it would be beneficial to have a recommended form of syndicated facility agreement intended for use in the relevant market, in much the same way as the LMA provided the Recommended Forms of Primary Documents (the Primary Documents) for the investment grade market, the recommended form of facility agreement for leveraged acquisition finance transactions (the Leveraged Document) for the leveraged market and the recommended forms of facility agreement for use in the developing markets (the Developing Markets Documents).
GTR: How did the LMA go about producing a standard form document for use in African markets?
Slocombe: From an early stage, it was recognised that the nature of finance transactions in local African jurisdictions was such that it would be difficult to produce a document which was in any way “standard”. In particular, it was accepted that any document which was produced would need to be adapted so as to be tailored to the particular transaction structure and the credit-related specifics of each transaction. However, it was still felt that it would be a step forward in promoting the efficiency of the market if a document was produced which was a good starting point for the draftsman and provided a common framework and language for those involved in these transactions, and which used the same basic structure and boilerplate as the Primary Documents.
Ansara: A working party consisting of representatives from banks (including in-house lawyers) and major law firms in South Africa (in respect of the South African Documents) and Kenya, Nigeria, Tanzania and Uganda (in respect of the East African and Nigerian Document) was established to finalise the African Documents. They were subsequently published in July 2014.
GTR: Is it possible to use the LMA African Documents without amendment?
Ansara: No – a large number of provisions will need to be tailored to a transaction on a case-by-case basis. The African Documents provide a sensible starting point for negotiation only, and do not attempt to deal with the complexities of each transaction. In particular, the provisions setting out the representations, undertakings and events of default are not intended to be exhaustive or absolute. It is expected that further representations, undertakings or events of default may need to be added and that the clauses that are included may need to be amended.
Furthermore, the African Documents contain a number of footnotes that are intended to assist users, either by drawing their attention to provisions that may be particularly sensitive to jurisdiction-specific concerns or by setting out suggested wording that may be used as a starting point for provisions that have been left blank.
Slocombe: It should also be noted that, although the working party did not include representatives of the borrower community, the documents produced do contain a number of borrower-friendly provisions which are not always included in a first draft, but which are sometimes conceded by lenders in negotiation.
GTR: Upon what basic assumptions are the African Documents drafted?
Ansara: All of the LMA African Documents are drafted on the following assumptions:
- The governing law is that of the relevant local market (for the East African and Nigerian Document, the desired jurisdiction will need to be selected);
- Syndication takes place in the relevant local market;
- The obligors are companies within the same group – the document is unlikely to be suitable for any other type of entity, partnership, association or individual; and
- The obligors are incorporated in the relevant local market.
GTR: What is the basic framework governing the LMA’s African Documents?
Slocombe: The LMA’s African Documents follow the same broad framework of other LMA documents, which may be broken down into the following sections:
- Definition and interpretation of terms
- Operational mechanics ie:
- the conditions on which the facility is made available (including the drawdown mechanism);
- the finance parties’ rights and obligations in relation to the facility;
- the determination of interest and interest periods;
- taxes and increased cost provisions;
- the terms on which the facility is to be repaid; and
- the provisions in relation to fees, costs and expenses.
- Guarantee and indemnity provisions
- Commercial provisions ie:
- the representations;
- the undertakings;
- the events of default; and
- the extent to which the parties to the agreement may change (including the transfer provisions).
- The boilerplate provisions ie:
- the relationship between the agent, the arranger and the lenders;
- sharing among the lenders;
- administration of the loan; and
- the provisions relating to the governing law and enforcement of the facility agreement.
- The schedules, which include transaction specific information (such as details of the lenders and their commitments) and forms of ancillary documentation which may be required throughout the life of the transaction (such as the utilisation request and transfer certificate) as well as the list of conditions precedent documentation.
GTR: How do the LMA’s African Documents differ from its Primary Documents?
Slocombe: Many market participants will be familiar with the terms of LMA loan agreements generally. Whilst African borrowers seeking to borrow from the syndicated loan market may be sufficiently creditworthy to raise finance on an unsecured basis, the increased commercial and legal uncertainties surrounding the jurisdictions in which they operate mean that they cannot necessarily borrow on investment grade terms.
Consequently, the representations, undertakings and events of default in the African Documents are more extensive than those in the LMA’s Primary Documents, containing provisions which will be more familiar to users of the LMA’s Leveraged Document, as well as additional provisions.
Ansara: The African Documents also contain terms specific to the local African jurisdiction which they are intended to be used in. These terms may be necessary as a result of local legal or regulatory requirements, or are simply a feature of market practice in that particular jurisdiction.
GTR: What next for the LMA’s African Documents?
Ansara: The LMA is hoping to broaden its suite of African Documents in the coming months – for example, by producing a secured version of the South African Documents. There is also ongoing discussion with regards to other African jurisdictions which could usefully be added to the suite.
GTR: How will the LMA go about growing the syndicated loan markets in Africa?
Slocombe: In addition to documentation, the LMA offers a range of educational opportunities for its members, including regular conferences and training workshops in various jurisdictions in Africa (namely, Kenya and Nigeria and South Africa). This training equips market participants with the necessary legal and commercial skills to perform effectively in a syndicated loan transaction, while also keeping members up to date with the latest developments in the market.
Ansara: Furthermore, the LMA closely monitors regulatory developments in order to highlight the legal and regulatory issues which have the potential to impact members working in these markets.
By standardising the approach to syndicated lending in Africa, and aligning domestic markets with international norms, it is hoped that the syndicated
loan product will become a useful tool for the provision of investment on the African continent