Given the Easter break and the continuing focus on Brexit, it was easy to miss the fact that the European Commission has released a report on the EU syndicated loan market and its impact on competition in the credit market. The report was prepared by Europe Economics on behalf of the European Commission's Competition Directorate. The report, which assesses the functioning of the loan syndication market in six key member states (including the UK), provides a timely reminder on the importance of competition compliance for participants in this market.
Although the report accepts that loan syndication is generally compatible with competition law, it highlights the need to ensure that when preparing bids, any market soundings taken by banks relate to general market intelligence and do not discuss specific companies or result in the exchange of specific, detailed information about another bank's future strategy or intentions. Ensuring there is adequate separation between syndication and origination teams is recognised as an important mechanism to mitigate potential competition law risks. It also considers that restrictions placed by lenders on who is permitted to provide hedging or other ancillary services can, in certain circumstances, be legitimate from a competition law perspective, but does note that this may ultimately depend upon the particular deal in question and whether the service is directly related to the loan.
The report also highlights that clauses which give lenders the "right of first refusal" or the "right to match" have been banned by the FCA (except where they relate to the use of bridging finance) on the basis they do not provide any benefit to clients, but may be in use in other member states. The report does not go so far as to call on other member states to ban the clauses but recognises that their use may lead to sub-optimal outcomes for borrowers. More information on the FCA ban can be found here.
Overall, the report recognises that whilst there is potential for competition law concerns to arise in the loan syndication market, safeguards such as ensuring lenders provide adequate competition law compliance training to their teams and the use of competitive processes by borrowers to appoint mandated lead arrangers do play an important role in mitigating these potential risks.