Bank och finans Nyhet

Loan syndication: European Commission publishes report on impact on competition

The European Commission has re­cent­ly published a re­port on the lo­an syn­di­ca­tion mar­ket and its im­pact on com­pe­ti­tion in cre­dit mar­kets. The re­port iden­ti­fi­es a num­ber of com­pe­ti­tion law is­sues which may le­ad to incre­a­sed scru­tiny of the European syn­di­ca­tion mar­kets by European com­pe­ti­tion aut­ho­ri­ti­es.

In 2017, the European Commission com­mis­sio­ned a study to ana­ly­se the lo­an syn­di­ca­tion mar­ket, in vi­ew of its im­por­tan­ce as a “ma­jor con­tri­bu­tor of debt fi­nan­ce, par­ticu­lar­ly in terms of lar­ge-sca­le debt”, and to iden­ti­fy com­pe­ti­tion law is­sues which might ari­se from it. On 5 April 2019 the fi­nal re­port (“the Report”) was ma­de pub­lic, and it iden­ti­fi­es a num­ber of com­pe­ti­tion law con­cerns. (1)

The main con­cern iden­ti­fi­ed is the flow of com­mer­ci­al­ly sen­si­ti­ve in­for­ma­tion between len­ders.

The Report finds that du­ring the pe­ri­od un­til the for­ma­tion of the len­der group, i.e. when fi­nal terms are agreed and the ori­gi­nal len­ders are man­da­ted, such in­for­ma­tion flow may oc­cur through mar­ket soundings by the len­ding in­sti­tu­tions re­gar­ding a trans­ac­tion. Depending on the le­vel of de­tail of such con­tacts, they may en­tail the sha­ring of pri­cing in­for­ma­tion spe­ci­fic to a trans­ac­tion and thus re­du­ce com­pe­ti­ti­ve pressu­re by sha­ring of fu­tu­re com­pe­ti­ti­ve in­tent, the­re­by af­fecting len­ders’ con­duct in re­spect of that trans­ac­tion. Lenders’ ongo­ing gat­he­ring of mar­ket in­tel­li­gence, again de­pen­ding on the le­vel of de­tail, may al­so pro­vi­de in­for­ma­tion ca­pab­le of af­fecting com­pe­ti­ti­ve be­ha­viour. The Report re­gards this risk as hig­her in the pro­ject fi­nan­ce/in­frastructu­re sector, sin­ce the­re is less in­for­ma­tion ge­ne­ral­ly avai­lab­le to pro­specti­ve len­ders. Where a le­ad ar­rang­er has be­en ap­poin­ted, sha­ring of in­for­ma­tion beyond the li­mits set by the bor­ro­wer may al­so ha­ve restricti­ve ef­fects. These con­cerns ari­se both whe­re in­di­vi­du­al len­ders are to be ap­poin­ted and whe­re com­pe­ti­tion ta­kes pla­ce among bank con­sor­tia for­med in ad­van­ce.

At the ti­me of the agre­e­ment on fi­nal lo­an terms, it follows ne­ces­sa­rily that de­tai­led in­for­ma­tion will flow between len­der banks; the Report ho­wever finds this to re­sult in litt­le com­pe­ti­tion risk, eit­her becau­se such di­scus­sions ta­ke pla­ce bi­la­te­ral­ly between the bor­ro­wer and each len­der, or that di­scus­sions among len­ders are cir­cumscri­bed by the man­da­te.

This sa­id, the Report ac­k­now­led­ges that the ex­changes descri­bed abo­ve may well be justi­fi­ed un­der com­pe­ti­tion law; in par­ticu­lar, con­tacts en­te­red in­to with the con­sent of the bor­ro­wer are vi­ewed as as po­ten­ti­al­ly ne­ces­sa­ry and thus justi­fi­ed.

At the pri­ma­ry syn­di­ca­tion stage, the Report vi­ews a pos­sib­le con­cern in con­duct ba­sed on re­ci­pro­ci­ty among len­ders in re­spect of par­ti­ci­pa­tion in the syn­di­ca­te. Basically, par­ti­ci­pa­ting len­ders would act as a sing­le group with re­spect to the lo­an terms, which may le­ad to an incre­a­se in the pri­cing of the lo­an whe­re that incre­a­se we­re not justi­fi­ed.

The Report mo­re­o­ver di­scus­ses the risk of col­lu­sion re­gar­ding an­ci­l­la­ry ser­vices, such as hed­ging and cash ma­na­ge­ment, in par­ticu­lar their al­loca­tion and/or pri­cing. Such col­lu­sion can hap­pen in its own or spill over from ot­her, le­gi­ti­ma­te di­scus­sions among the len­ders. The Report al­so ra­i­ses the po­ten­ti­al ne­ga­ti­ve ef­fects of len­ders stap­ling the pro­vi­sion of an­ci­l­la­ry ser­vices to the lo­an.

In si­tu­a­tions of events of de­fault or distres­sed cir­cumstan­ces, the Report ra­i­ses the po­ten­ti­al con­cern that len­ders may col­lu­de among them in re­spect of the lo­an op­por­tu­ni­ti­es ari­sing from an event of de­fault or ot­her distres­sed si­tu­a­tion, e.g. se­ek­ing to im­po­se ex­ces­si­ve terms or ad­di­tio­nal ser­vices on the bor­ro­wer. The Report do­es no­te that no evi­dence of such be­ha­viour has be­en found.

The Report al­so ra­i­ses the pos­si­bi­li­ty of col­lu­sion in the se­con­da­ry mar­ket, whe­re­by len­ders would col­lu­de on how, when and at what price to sell debt. However, it finds no evi­dence of such con­duct.

In sum­ma­ry, the Report ra­i­ses a num­ber of po­ten­ti­al com­pe­ti­tion is­sues but ap­pe­ars, on the fa­ce of it, to iden­ti­fy litt­le in the way of ac­tu­al ob­ser­ved con­duct in bre­ach of com­pe­ti­tion law. The Report use­ful­ly ra­i­ses a num­ber of me­a­su­res – com­pli­an­ce trai­ning, se­pa­ra­tion of ori­gi­na­tion and syn­di­ca­tion desks – which may ser­ve to li­mit the risk of such bre­aches hap­pe­ning.

The in­ve­sti­ga­tion car­ri­ed out in the fram­ework of the Report was li­mi­ted to six Member States (France, Germany, Italy, Poland, the Netherlands, Spain and the UK). It would of cour­se be in­te­re­s­ting to see whet­her the si­tu­a­tion is dif­fe­rent in ot­her Member States.

It re­mains to be seen what ac­tion the European Commission will ta­ke on the ba­sis of the Report. Such ac­tion, be it in the form of sector in­quiry or in­di­vi­du­al in­ve­sti­ga­tions, may al­so be in ad­di­tion to Member State en­for­ce­ment ac­tion.

(1) “EU lo­an syn­di­ca­tion and its im­pact on com­pe­ti­tion in cre­dit mar­kets”

The aut­hors are Eric Halvarsson and Mats Johnsson.