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Sustainability-linked loans: LMA publishes model provisions

On 4 May 2023, the Loan Market Association (LMA) published model form provisions for sustainability-linked loans (SLLs). The precedent wording provides a proposed form of drafting for sustainability-linked loan provisions to be inserted into the LMA’s senior multicurrency term and revolving facilities agreement for leveraged acquisition finance transactions. The wording can also be adapted for use in conjunction with the LMA’s other recommended forms of facility agreement.

The draft provisions fit with the sustainability-linked loan principles and accompanying guidance that were published by the LMA in February 2023.

An aerial image of solar panels on a green field. A visual metaphor for the topic of this piece, sustainability-linked loans.

What are sustainability-linked loans?

Sustainability-linked loans aim to facilitate and support the key role that credit markets can play in funding and encouraging borrowers to contribute to sustainability. A sustainability-linked loan incentivizes a borrower to achieve material, ambitious, pre-determined, regularly monitored and externally verified sustainability objectives through key performance indicators and sustainability performance targets.

Why have model provisions?

According to the LMA, the model provisions seek to reflect current market practice, and provide a vital tool to protect the integrity of the SLL market by providing a basic drafting framework to assist parties in the negotiation of the document. The model provisions also include extensive drafting notes setting out points for parties to consider when undertaking a SLL transaction.

The model provisions provide a starting point for a sustainability-linked loan and are not intended to be a comprehensive analysis of sustainability-linked loan transactions. In addition, they intentionally omit several features which are commonly negotiated between parties, for example specific sustainability condition precedents have not been included even though they will be required in many loans.

The fact that parties to a transaction can start from standard LMA drafting will hopefully encourage more market participants to consider sustainability-linked loans and ensure that SLLs are easily comparable.

How we can help

At Walker Morris, our team of banking specialists has expert knowledge and experience of the full range of debt funding transactions, for borrowers, lenders and sponsors. We advise across all types of corporate acquisitions, both in the private equity market and where corporate borrowers are funding acquisitions with debt finance. We’re used to dealing with all kinds of funding solutions, from leveraged finance to asset based lending and we are actively involved in various forms of sustainable finance. Please contact James Crellin or Philip Scott who will be happy to help.