This post was also written by Helena Nathanson.
The Loan Syndications and Trading Association (“LSTA”) provides model agency provisions that reflect standard market practice in the United Sates primary loan markets, while the Loan Market Association (“LMA”) provides model provisions reflecting market practices in the European markets. In the U.S., the administrative and collateral agent is typically the same institution as (or an affiliate of) the lead arranger. By contrast, in Europe, the administrative agent is a separate institution from the lead bank and arranger, and may also be a different institution from the collateral agent. This distinction leads to numerous differences in how the LSTA and the LMA provisions deal with agents, a few of which are discussed below.
- United States: The agent is not liable for actions taken (i) at the request of the majority lenders or (ii) in the absence of gross negligence or willful misconduct, as determined by a court of competent jurisdiction. Further, the agent is not deemed to have knowledge of a default until notice is provided in writing.
- Europe: Generally, the agent is also not liable for actions taken in good faith; however, this is becoming a point of negotiation in European transactions. With regards to default, the LMA requires the agent to have “actual knowledge” (which it likely would not have until written notice is provided, given the third-party agent’s distance from the transaction).
- United States: The agent may perform its duties and exercise its rights through sub-agents, and exculpatory provisions apply to sub-agents. The agent is only responsible for negligence or misconduct of a sub-agent if a court determines the agent acted with gross negligence or willful misconduct in the selection of such sub-agent.
- Europe: The agent may employ sub-agents, however under English law a person remains liable for acts by delegates. Therefore, an agent will be responsible for the negligence or misconduct of a sub-agent, regardless of how the agent acted.
- United States: The agent may resign at any time by giving notice. The majority lenders, in consultation with the borrower, have the right to appoint a successor. If no successor is appointed within 30 days, the agent may appoint the successor itself. However, the resignation becomes effective after 30 days regardless of whether a successor has been appointed.
- Europe: The agent may not resign until a successor is in place. Further, if the agent seeks to appoint the successor itself it typically must satisfy a number of preconditions (e.g., successor meets certain ratings or successor is approved by any number of identified parties).