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Clifford Chance

Clifford Chance


Credit protection in investment grade syndicated credit facilities - recent trends

14 October 2011

Credit protection terms available to high-quality corporate borrowers seeking investment grade loans on the corporate syndicated loans market have remained at the same level as before the global financial crisis.

Analysis carried out by Clifford Chance shows that lenders are not imposing tighter credit protection terms on higher rated corporate borrowers, such as those in the AAA to AA- bracket, despite an increased awareness of the issue of credit risk following the global financial crisis.

The finding, which is based on Clifford Chance's analysis of a significant proportion of the corporate syndicated loans completed in the European markets over the past three years, shows that the credit protection terms offered to corporate borrowers tend to correlate directly with how highly they are rated by credit rating agencies.

Corporate borrowers that are just below investment grade, such as those rated BB+ to BB-, have to accept wide-ranging credit provisions that include financial covenants and MAC clauses (Material Adverse Change), as well as various restrictions on their ability to make significant changes to their business.

Although a commonly-held view immediately after the onset of the global financial crisis was that credit protection standards needed to be tightened, it is likely market pressures have subsequently led competing lenders to loosen the terms available to high-quality corporate borrowers seeking investment grade syndicated loans.

This article was originally written for the LMA Syndicated Loans Conference 2011.

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