Paul Apathy from Herbert Smith Freehills shares his article Not a sure thing? LMA secondary trades of surety bonds, bank guarantees and letters of credit with us.

Taken to the English High Court earlier this year, the GSO Credit - A Partners LP v Barclays Bank Plc case centred on the interpretation of key terms used in standard form Loan Market Association (LMA) secondary trading documentation. It examined the subject matter of trades concluded under LMA documentation, in the context of a surety bonds facility, and specifically, whether the transfer of a lender’s ‘position’ under a surety bond facility will also transfer the lender’s exposure in respect of any issued surety bonds.

Whilst LMA secondary trading documentation is governed by English law, the decision is significant given the widespread international reliance upon LMA documentation for loan and debt trades. The decision also has broader application beyond surety bonds to similar instruments and facilities such as bank guarantees and letters of credit.

The decision also highlights a lacuna in the LMA documentation at the time of the trade considered in the case namely that the LMA Terms provided for the sale of ‘Purchased Assets’ but not ‘Purchased Obligations’. This has been remedied with the introduction of the revised LMA Terms on 3 March 2014 …for the whole article.