IHS Markit (NYSE: INFO), a world leader in critical information, analytics and solutions, today announced that ClearPar has introduced electronic trade settlement to the distressed leveraged loan market. Deutsche Bank was the first to close a trade using the new technology.
Parties to distressed loan trades manage lengthy legal due diligence reviews, document production and trade closing manually. As a result, 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. With those processes automated, buyers and sellers can settle trades much more efficiently and quickly.
The trade completed by Deutsche Bank using ClearPar closed in 10 days.
“Automating this complex segment of our market is a major advance for the industry,” said 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,” said 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.”
Solving the documentation and upstream challenge
With trade data from the par market already in ClearPar, the new 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. Driven by the information in ClearPar, the new service generates the LSTA Purchase and Sale Agreement for Distressed Trades (PSA) electronically, as a data-driven output rather than a manually drafted document.
“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,” said 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.” Magis Analytics partnered with IHS Markit on developing the distressed solution.
ClearPar, the engine of loan market automation and innovation
ClearPar paved the way for electronic loan trade settlement in 2001. Since then, it has systematically automated multiple aspects of the trade closing process while creating a global network connecting nearly 1,000 trade counterparties, agents, legal counsel and other service providers. Today, matching trades, allocating trades to funds, generating assignment agreements, securing borrower’s consent, calculating trade proceeds and communicating payment instructions are automated or managed electronically.
ClearPar also offers robust system-to-system integration to banks, asset managers, custodians, trustees and the market-leading WSO software and services from IHS Markit, among other providers.
Excluding when-issued trades, about $634.5 billion in par trades in the LSTA secondary market were settled using ClearPar - representing 750,000 fund allocations – through the first three quarters of 2019.