Press Release

1 July 2024, London The European Leveraged Finance Association (ELFA) today published an open letter from its Board addressing critical issues within the European leveraged finance market. Titled “Taking Stock of Market Standards on Disclosure, Process, and Engagement in the European Leveraged Finance Market,” the letter outlines the current challenges faced by lenders and the broader market due to insufficient disclosure, rushed processes, and limited engagement.

ELFA’s best practice guidance includes governance standards designed to support an efficient, fair, and transparent leveraged finance market from the perspective of lenders. The association believes that adherence to these practices would significantly improve the efficient functioning of the market.

Key issues highlighted in the Open Letter include:

Rushed Processes Reducing Scope for Negotiation
• The current timelines for reviewing documentation in both the leveraged loan and high yield bond markets are too short, often
leaving lenders with insufficient time to analyse and negotiate terms.
• Leveraged loan lenders frequently receive limited or draft documentation, with full documentation provided only a day before
commitments are due. This rushed process is particularly evident in repricing transactions, where lenders may have as little as 48
hours to consider their decisions.

Insufficient Covenant Information
• There is a lack of reporting on covenant-related information, which creates potential surprises due to unexpected borrower
behaviour. This lack of transparency is detrimental to all market participants.
• The letter references the International Organization of Securities Commissions (IOSCO) Good Practices on Leveraged Loans and
CLOs, which recommend clear disclosure of material covenants and associated terms.

Increasing Restrictions on Transferability
• Overly restrictive transferability conditions are hampering liquidity and negatively impacting the market’s health. ELFA has
engaged with private equity sponsors to voice these concerns and is considering publishing best practice guidance on
transferability.

ELFA notes that regulators have recently shown interest in processes, transparency and disclosure in the leveraged finance market. ELFA will continue to support a lightly regulated leveraged finance industry in respect of the issues discussed in the open letter and encourages market participants to use the resources developed by ELFA to support best practice. For example, ELFA’s New Deal Disclosure Questionnaire includes questions on covenant capacity to enhance transparency designed to support engagement on these issues during the marketing process for deals.

ELFA intends to host a series of roundtables to explore these issues with market participants. The roundtables will take place July and banks, law firms, private equity sponsors and other market participants interested in joining can contact Emma Kearney at ekearney@elfainvestors.com.

Read the Open Letter here.