IHS Markit has partnered with Magis Analytics, to launch electronic trade settlement for the distressed leveraged loan market.
Parties to distressed loan trades manage lengthy legal due diligence reviews, document production and trade closing, manually. The average settlement time for distressed loans in 2018 was more than four times longer (T+67) than that of par/near par loans (T+16).
The ClearPar distressed loan settlement solution offers electronic workflows to review upstream ownership history, manage inventory and create purchase and sale agreements. Automating those processes allows buyers and sellers to settle trades much more quickly and efficiently. Deutsche Bank was the first to close a trade using ClearPar’s technology, completing the trade in 10 days.
“Automating this complex segment of our market is a major advance for the industry,” says Patricia Tessier, managing director and co-head of Loan Platforms at IHS Markit. “Bringing the time-tested functionality and network of ClearPar to distressed is a natural expansion for us and demonstrates our deep commitment to helping clients reduce risk and promoting efficiency in the asset class.”
“The advent of this solution from ClearPar is extremely timely for the loan market,” says Shawn Faurot, managing director and head of US Credit Trading at Deutsche Bank. “Already, there is an uptick in the number of names trading on distressed paper and moving distressed closing from a manual process to an electronic system positions us to operate nimbly and efficiently should credit conditions deteriorate.”
The distressed loan solution catalogs upstream history, including the documents and data connected with it. It provides intuitive tools to manage inventory and gives users history and transparency for trades and positions. The service can generate the LSTA Purchase and Sale Agreement for Distressed Trades (PSA) electronically, as a data-driven output rather than a manually drafted document.
Magis Analytics partnered with IHS Markit on developing the distressed solution. “For each distressed trade – and every trade allocation – the seller must identify and describe in the PSA the often multiple chains of title from first transfer all the way into the seller’s hands,” says Mike Kerrigan, partner at Hunton Andrews Kurth and manager of Magis Analytics. “The seller then delivers these bulky upstreams to the buyer, who must in turn review each link in every chain, for every allocation. This manual and labor-intensive process is now fully automated by ClearPar, bringing much-needed efficiency and freeing up time for higher value activities.”