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In 2017 the Directorate-General for Competition of the European Commission (DGCOMP) kicked-off a process to examine loan syndication.
In an initial step, DGCOMP commissioned a study to take stock of the EU loan syndication market. The study was aimed at deepening the understanding of the syndication process and screening for areas where the competitive dynamics of the markets might be susceptible to anti-competitive collusion. DGCOMP was evidently wary that the loan syndication process exhibits features that are vulnerable to anti-competitive conduct.1
On 5 April 2019 the long-awaited study was published. The study sets out a comprehensive description of the syndication process with a focus on leveraged buy-out financings, project finance and infrastructure finance. It then details various potential areas of "friction" through the syndication process (stage-by-stage analysis), where the loan syndication process may pose antitrust risks.
What are the main take-aways?
The study does not challenge loan syndication as such. It recognizes that syndicated loans are beneficial in that they enable institutional investors/banks to provide loans for projects which may be too large or risky for an institution to finance alone. Interestingly, there is remarkably little discussion in the study as to what scale of financing / risk would render loan syndication legitimate.
Rather, the study considers compliance with the instructions/mandate from the borrower / the sponsor to the arranging banks as an important "pointer" for the lawfulness of the syndication (albeit without wanting to pre-empt DGCOMP's views). At the same time, the study caveats that the adherence to the instructions/mandate would not provide a "safe-harbor" for potentially collusive behavior that the syndicated lending process may facilitate, or that may go beyond the borrower's instruction (spill-over practices). By this token, the study singles out various competition law risks that can arise in the syndication process, including the following:
What is next?
The study will be the reference point for further actions of DGCOMP. It is too early to venture a guess as to whether DGCOMP will take enforcement action, though it is fair to assume that DGCOMP and the national competition authorities will have syndicated loans "on their radar". Potentially, DGCOMP might want to firm-up the findings of the study with a targeted sector inquiry (as was done in other sectors). This would entail an in-depth probe into the areas which the study identifies and ultimately could lead to case-enforcement.
In light of the holistic approach of the study, i.e. the study also points to other (non-antitrust specific) aspects of the syndication process, the study could well serve as the ground-work for a joint guidance paper of DGCOMP and EU financial services regulatory bodies.
What can lenders do?
While highlighting several areas of concern, the study helpfully details various safeguards. These include proper documentation of the mandate relation with the borrower/sponsor, separation of origination and syndication desks, compliance trainings for staff, internal guidance manuals etc. Persons involved in syndicated loan markets, in particular in arranging syndicated loans, should carefully review the findings of the study.
(1) See DGCOMP's Annual Management Plan for 2017, "this area exhibits close cooperation between market participants in opaque or in-transparent settings, such as over-the-counter (OTC) activities, which are particularly vulnerable to anti-competitive conduct.
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