Execs to Propose Key Standards For Loan Sales

In an effort to add order and liquidity to the bank loan market, senior officials from leading U.S. banks will soon issue recommendations on ways to standardize key aspects of loan sales.

"We did not set out to turn loans into securities but to borrow some of the securities market's characteristics," said Charles Kiley, managing director in charge of structured sales at the bank subsidiary of Bankers Trust New York Corp. and one of the bankers involved.

Ultimately, a more liquid loan-sales market should make major underwriting banks more willing to originate loans in the first place.

Fall Release Planned

The recommendations, expected to be issued early this fall, are being drawn up by officials from about 30 money-center and major regional banks, all of whom are on a loan sales committee operating under the auspices of the American Bankers Association.

Comments on the recommendations will be solicited from a broad range of participants in the loan sales market, including nonbank institutions.

Looking to the bond and swap markets as models, the bankers sought ways to standardize the settlement policies and documentation of loan sales, as well as general syndicate practices - all with the aim of making the market more liquid.

Right now, a glaring lack of uniformity in terms of loan documentation and settlement policies makes for a bulky, disorderly loan market, bankers said.

Three subcommittees of the ABA panel have been working to correct these deficiencies and are close to a consensus on many issues, bankers involved in the process said.

Subcommittee Roles

For example, one subcommittee has been trying to draw up standardized loan sale documents, and another has been seeking to establish a uniform settlement period for loan sales.

But the committee deliberately avoided the issue of whether banks should mark their loans to market prices, though that would be the most effective way to add liquidity to the loan sales market, several committee members acknowledged.

"If we tried to address something as controversial as mark-to-market, we wouldn't have gotten any place," said Mr. Kiley of Bankers Trust, who is the committee's cochairman. The other cochairman is Robert Woods, managing director for portfolio management at the Citibank unit of Citicorp.

In some cases, committee members resisted standardization because they wanted the flexibility to adapt their syndication practices to the deal at hand.

"Clearly, standardization and flexibility are competing forces," said Mary Ellen O'Connor, head of U.S. loan distribution at the banking unit of Manufacturers Hanover Corp., and cochairman of a subcommittee that looked at syndication practices.

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