On December 3, the Loan Market Association (LMA) published a paper on the consequences of a scenario in which the United Kingdom withdraws from the European Union (Brexit) without concluding a withdrawal agreement, commonly referred to as a “no-deal Brexit.” The paper focuses on the impact of a no-deal Brexit on lending by UK lenders to borrowers located in the remaining 27 member states of the European Union (EU27), and the wider negative impact on the EU economy.
In its paper, the LMA states that it is vital that transitional arrangements are put in place as soon as possible so that borrowers are adequately protected, irrespective of the manner in which Brexit is affected. The LMA sets out a number of issues which arise when considering the need for transitional arrangements in the context of a syndicated loan market, along with proposed solutions, such as:
- Licensing and the ability to conduct cross-border business with respect to both new and existing customers in the EU27;
- Ensuring the continuing validity, effectiveness and enforceability of the loan contract itself, including the extent to which courts of the EU27 will continue to give effect to judgments of English courts;
- Ancillary issues beyond the scope of core lending activity, but which might impact the decision or ability of an institution to lend.
The LMA’s paper also notes that, as part of many syndicated loan arrangements, borrowers require access to not only the syndicated loan itself, but also an integrated, so-called “package” of products and services provided by both syndicate lenders and potentially other specialist providers. Without appropriate transitional arrangements in place to ensure ongoing access to the full range of products and services, the LMA states that many borrowers may find themselves in a difficult situation if a particular product becomes illegal to provide by a particular party post-Brexit.
The LMA concludes by advocating the imposition of transitional arrangements as a matter of urgency, as any gap or delay in such arrangements becoming effective could significantly negatively impact EU borrowers, as well as the wider EU economy.
The LMA paper is available here.