The old-fashioned leveraged loan market is closer to abandoning faxes
The $1.38 trillion U.S. leveraged loan market is nearing an innovation that could finally move back-office operations to a centralized system and free investors from having to manually track their positions, a process that may yet include the occasional fax.
Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. on Wednesday unveiled the name of the new platform that will allow lenders to access their portfolio data in one place and said Credit Suisse Group AG , one of the top leveraged loan arrangers, has joined the portal.
Called Versana, the platform will officially launch around the middle of this year with term loans and then soon add revolving credit facilities and other services, said the company’s chief executive, Cynthia Sachs.
“It’s going to provide a level of transparency that the market has never seen before,” Sachs said in an interview.
The leveraged loan market is a key source of funding for private equity firms that load companies with debt for leveraged buyout transactions. Versana comes at a time of immense growth for the asset class, even though the market has resisted some major technological advances. The market is bigger than ever, according to Leveraged Commentary & Data based on the S&P/LSTA Leveraged Loan Index.
Unlike bonds, loans are not registered securities, which means the details of debt structure and company disclosure requirements depend on each loan’s legal documentation. This lack of standardization made it difficult to centralize data.
Versana aims to improve the back-end of the process, the way banks communicate notices to lenders. Putting all this up-to-date information in one place could potentially improve the notoriously long settlement times for leveraged loans, which average over 20 days.
Versana will also eventually include the portion of the syndicated loan market where groups of banks lend directly to businesses, which was a crucial source of funding for businesses at the start of the COVID-19 pandemic.
Each loan has a bank that serves as the administrative agent and maintains back-office records. They notify lenders of a range of changes that may occur, such as an interest payment, a company’s early repayment of debt, and changes to legal documentation.
But these notifications are not standardized, and investors often have to follow a hodgepodge of messages from several different banks. If there is a discrepancy, an investor should call, email or instant message the bank to find out why, for example, their portfolio cash flows are not meeting their expectations.
“These are things that you’re probably surprised the market doesn’t have,” Sachs said. “It’s like not having a bank statement, to be able to say, ‘Oh, let me understand why I’m out of my checkbook.'”
Currently, investors sometimes do not know precisely how much of a loan they have when making a transaction, due to delays in messages regarding interest payments and prepayments, which can take time. to verify and extend settlement times, a problem the new platform should theoretically solve, said Lee Shaiman, executive director of the Loan Syndications and Trading Association.
The technology behind the market hasn’t kept pace with loan growth over the past two years, and lenders have had to spend too much time seeking information from proxy banks, said loan trading manager Alex Naboicheck. leverage in the United States at the Bank. from America.
“It’s really information and knowledge that lenders already have,” he said. “It’s just a better way to deliver it to them electronically.”
Versana will only have information about loans for which the bank administrative agent has decided to participate, making it crucial for the platform to add more banks to the system. Sachs said discussions are underway with other banks to join. Versana plans to add features and expand, which could include other markets such as Europe or middle-market lending, Sachs said.
Versana will need to compete and innovate quickly to attract market players, said Kevin McPartland, head of market structure and technology research at Coalition Greenwich.
“It’s certainly a huge tailwind for any new operation to have these big banks backing them, but the markets are complicated and volatile and that’s not always a guarantee of success,” he said.
Paula Seligson reports for Bloomberg News.