The $1.38 trillion U.S. leveraged loan market is nearing an innovation that could finally shift back-office operations to a centralized system and away from investors having to manually track their positions — a process that can still include the occasional fax.
Bank of America, Citigroup and JPMorgan Chase on Wednesday unveiled the name of the new platform that will let lenders access data across their portfolios in one place and said that Credit Suisse Group AG, one of the top arrangers for leveraged loans, has joined the portal.
Called Versana, the platform will formally launch around the middle of this year with term loans, and then soon add revolving credit facilities and other services, said the company’s CEO, Cynthia Sachs.
“It’s going to provide a level of transparency that the market has never seen before,” Sachs said in an interview.
The leveraged loan market is a key source of funding for private equity firms loading up companies with debt for leveraged buyout deals. Versana comes at a time of immense growth in the asset class even as the market has resisted some major technological advancements. The market is bigger than ever, according to Leveraged Commentary & Data based on the S&P/LSTA Leveraged Loan Index.
Unlike bonds, loans are not registered securities, meaning the specifics of how the debt is structured and the company’s disclosure requirements depend on each loan’s legal documentation. That lack of standardization has made it difficult to centralize data.
Versana aims to improve the back end of the process — how banks communicate notices to lenders.
Putting all that information in one up-to-date place could eventually improve notoriously long settlement times for leveraged loans, which stand at more than 20 days on average.
Versana eventually will also include the portion of the syndicated loan market where groups of banks provide loans directly to companies, which was a crucial funding source for corporations at the start of the COVID-19 pandemic.
Every loan has one bank that serves as the administrative agent and provides back-office record keeping. They notify lenders on a range of changes that can occur, such as an interest payment, a company paying down debt early and amendments to the legal documentation.
But those notifications are not standardized, and investors often have to track a hodgepodge of messages from a number of different banks. If there is a discrepancy, an investor has to call up, email or instant message the bank to sort out why, for example, the cash flows in their portfolio don’t match their expectations.
“These are things that you’re probably surprised the market doesn’t have,” Sachs said. “It’s like not having a bank statement, to basically be able to say, ‘Oh, let me figure out why I’m off in my checkbook.’ ”
'Better way'
Currently, investors sometimes don’t know precisely how much of a loan they own when making a trade, due to delays in messages about interest payments and prepayments, which can take time to verify and lengthen settlement times — a problem the new platform should in theory fix, said Lee Shaiman, executive director of the Loan Syndications and Trading Association.
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"This is really information and knowledge that the lenders already have,” he said. “This is just a better way to deliver it to them electronically.”
Versana will only have information on loans where the administrative agent bank has decided to participate, making it crucial the platform adds more banks to the system. Sachs said discussions are ongoing with other banks to join.
Versana plans to add features and expand, which could include into other markets such as Europe or into middle-market lending, Sachs said.
Versana will need to compete and innovate quickly to attract market participants, said Kevin McPartland, head of market structure and technology research at Coalition Greenwich.
“It is certainly a huge tailwind to any new operation to have these big banks backing them, but markets are complicated and fickle and it’s not always a guarantee to success,” he said.
