New Schuldschein Loan Agreements and User Guide

At the end of October 2018, the Loan Market Association (“LMA”) launched for the first-time recommended forms of loan agreements and an updated user guide for Schuldschein transactions.

 

While Schuldschein loans have been in existence for many years in Germany, they have seen in the past years a significantly increasing interest, both domestically and internationally. Of the more than 160 new Schuldschein transactions in 2017 accounting for a volume of more than 25 billion Euro some 30 % were initiated by international borrowers.

While the market already uses boilerplate language in Schuldschein loan agreements, each arranger has to date made use of its own templates. This lack of a common approach resulted not only in additional cost for issuers, but also made it more difficult to develop a sound secondary market.

Late 2017 participants from different market segments came to the conclusion that it would be beneficial to develop a recommended form of Schuldschein loan agreement in order to support the growing economic significance of Schuldschein loans while protecting the essence of the Schuldschein documentation. They formed a working group consisting of representatives from the LMA, the Verband Deutscher Treasurer – VDT (Association of German Treasurers), domestic German and international banks (including in-house lawyers) and major law firms active in the Schuldschein market.

Further targets of this working group were to develop a more efficient Schuldschein market and documentation process, allowing the contracting parties to focus on the essentials. The template provided by the working group can be the basis for the documentation, but the contractual terms need to be specifically and individually negotiated between the parties to the agreement.

Finally the standardized language is also expected to facilitate the recent developments towards a more digitalised Schuldschein issuance process including technologies such as blockchain.

The recommended form has been developed for a euro denominated loan of a German borrower and a potential German guarantor with a solid investment grade rating or an adequate level of creditworthiness. It is governed by German law and the paying agent is in Germany.

All documents are available in the German and the English language for both single borrower and single borrower / guarantor transaction structures. They are accompanied by a User Guide that addresses all material Schuldschein loan related legal issues, including further sample clauses and is unique in the market (https://www.lma.eu.com/documents-guidelines/documents/category/schuldscheindarlehen). 



Andreas Sowa
VDT