Short Reads

Financial sector remains on the antitrust radar: the report on loan syndication is out

Financial sector remains on the antitrust radar: the report on loan s

Financial sector remains on the antitrust radar: the report on loan syndication is out

02.05.2019 NL law

The European Commission recently published a report it had commissioned to examine the market dynamics and potential antitrust risks related to loan syndication. The report serves as guidance to the financial industry by identifying aspects of the market and syndication process which may raise competition concerns.

It also makes recommendations to safeguard competition in the loan syndication market. Companies offering this service should dust-off their compliance policies as enforcement action may be on its way.

Syndicated loans are loans issued to a single borrower by several lenders in a single loan facility agreement to share credit risk. A major driver behind syndicate formation is lenders' desire for portfolio diversification as a means to risk management.

The Report was commissioned in view of indications that the market may not be functioning optimally from a competition law perspective. The Report, drawn up by Europe Economics and Euclid Law, observes that the segments of the industry that were examined are generally not highly concentrated and that borrowers tend to be sophisticated in how they structure their processes for obtaining capital. However, it also identifies some market features that could lead to anti-competitive conduct. As the level of competition risks varies depending on the stage of the syndication process, the Report includes a stage-by-stage analysis of competition issues relating to each element of the syndicated loan process:

  1. Competitive bidding for appointment as mandated lead arranger: the Report identifies market sounding prior to banking group formation as an important competition risk because it may facilitate collusion.
  2. Post-mandate to loan agreement: discussions between the lending banks to agree on the terms of the loan should not raise competition risks unless they go beyond what is necessary to jointly provide the loan to the borrower. Moreover, lenders may have multiple interactions with other lenders for different transactions. This could in theory lead to coordination on future transactions.
  3. Provision of ancillary services as a condition of the loan: ancillary services, which do not directly relate to the syndicated loan, raise the risk of a borrower achieving a sub-optimal economic outcome.
  4. Use of debt advisors also involved in syndicated loans: being a debt advisor and a lender for the same loan/borrower may not benefit the borrower.
  5. Coordination by lenders on the sale of the loan on the secondary market: the features of the secondary market should generally limit any attempt by sellers to manipulate the price of debt. Additionally borrower restrictions (which are common on secondary trading) may limit the development and efficiency of the secondary market.
  6. Promotion of unbundled price competition: in the event of a default there is the risk that banks act in a coordinated manner.

Although the Report does not draw any legal conclusions, it serves as guidance to the financial industry by identifying different aspects of the market and syndication process which may raise competition concerns. It also provides safeguards to ensure competitive outcomes in the loan syndication market. For instance, lenders should implement enforceable protocols on information sharing to avoid unwarranted information exchange. The Commission is now to decide on next steps, such as further analysis of the sector (e.g. through a sector inquiry) or formal investigations into behaviour potentially infringing the competition rules.

 

This article was published in the Competition Law Newsletter of May 2019. Other articles in this newsletter:

Team

Related news

24.09.2020 BE law
Stibbe hosts a webinar on dawn raids organised by IBJ/IJE

Seminar - On 24 September 2020, several Stibbe lawyers ​​​​​explain the rights and obligations of companies when confronted with announced or unannounced raids. What do to when, for example, tax authorities, the competition authorities, police services or a bailiff are at your doorstep?

Read more

03.09.2020 NL law
Home, but not alone: Commission may complete dawn raids from home

Short Reads - The European Court of Justice (ECJ) has rejected Nexans’ appeal in the power cables cartel case. The Commission started the dawn raid at Nexans’ premises, but due to lack of time finished the raid at the Commission’s premises in Brussels. The ECJ found that the Commission can copy data and assess its relevance to the investigation at its own premises, while safeguarding companies’ rights of defence.

Read more

03.09.2020 NL law
COVID-19 impacts level and payment of antitrust fines

Short Reads - As well as granting companies leeway on certain COVID-19 initiated collaborations (see our May 2020 newsletter), the coronavirus outbreak has also led competition authorities to take a more lenient stance towards fine calculations and payments. The European Commission has extended the due date for fine payments by an additional three months in response to potential short-term liquidity issues brought about by the pandemic. Similar reasons led the Dutch Trade and Industry Appeal Tribunal to reduce a EUR 1 million cartel fine to just EUR 10,000.

Read more

03.09.2020 NL law
The ACM’s Green Deal: achieving sustainability via competition law?

Short Reads - The ACM has issued draft guidelines on the application of competition law to sustainability agreements. Companies entering into agreements that restrict competition but contribute to governmental sustainability objectives – i.e. lower CO2 emissions – may expect more room for collaboration. The proposed framework would allow these types of agreements if their anti-competitive effects are outweighed by their environmental benefits to society as a whole (rather than to in-market consumers only, as under the existing framework).

Read more

02.07.2020 NL law
European Commission to pull the strings of foreign subsidies

Short Reads - The European Commission is adding powers to its toolbox to ensure a level playing field between European and foreign(-backed) companies active on the EU market. On top of merger control and Foreign Direct Investment screening obligations, companies may also need to account for future rules allowing scrutiny of subsidies granted by non-EU governments if those subsidies might distort the EU Single Market.

Read more