Sustainability-Linked Loans: Recent Changes to Best Practice Guide to Sustainability-Linked Leveraged Loans

In line with the global trend of increasing importance of sustainability-linked loans, the Loan Market Association (LMA) and the European Leveraged Finance Association jointly published on 5 October 2023 the updated Best Practice Guide to Sustainability-Linked Leveraged Loans (the “Updated Guide”), which contains updates to the original Best Practice Guide to Sustainability-Linked Leveraged Loans published in June 2021 (the “Original Guide”).

The Updated Guide seeks to provide practical guidance as to the application of the Sustainability-Linked Loan Principles (SLLP) as revised on 23 February 2023 to leveraged loans (SLLLs), setting out what borrowers, finance parties and their respective advisers should consider when integrating sustainability factors into leveraged loan facility agreements. Leveraged loans are uniquely positioned to incorporate sustainability-linked loan (SLL) characteristics because of (i) the close relationship between lenders and borrowers due to the on-going due diligence process in leveraged finance transactions, (ii) information reporting is not constrained by securities law and (iii) investors and lenders are accustomed to performing “deep dives” into the borrower’s business.

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