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FATCA risk under facility agreements: one step closer to consensus

United Kingdom
11/06/2014
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On 9 June 2014 the Loan Market Association (“LMA”) published updated guidance relating to FATCA wording under facility agreements. The guidance states that whilst there are a number of potential approaches to FATCA in the market, a most commonly agreed approach for investment grade facilities has emerged. This approach under the LMA was previously called “Rider 3” and this drafting has been incorporated in the suite of English law governed LMA investment grade facility agreements. The LMA has also incorporated the common FATCA provisions into its drafting.

While “Rider 3” may be the most common approach it is of course not suitable for every scenario and therefore FATCA exposure should still be considered in every negotiation. LMA has not withdrawn “Rider 1” and “Rider 2” both of which are still valid alternative approaches to dealing with FATCA.

The LMA acknowledges in this guidance that the likelihood of “pass-thru” withholding being implemented from 2017 is not certain and advises parties to consider whether the risk of it being implemented is worth complicating loan arrangements.

FATCA remains an evolving issue for lenders and borrowers alike but this move by the LMA is a step in the right direction for the market.

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