Risk Management: Delivering Innovative Solutions for the Leveraged Loans Market

In recent years, we have focussed significant resources on helping the industry address two perennial challenges: operational risk and settlement risk. We have developed new solutions, including Loan Reconciliation and ADFlow, to address specific aspects of risk management and, having hit a number of important adoption/usage milestones in 2021, we are continuing to innovate and streamline the integration between our products.

We developed Loan Reconciliation to support lender and agent banks by automating the validation of position data. The solution gives users confidence that they have the correct position information as loan assets are traded and pass through lifecycle events. This avoids discrepancies that could require manual reconciliation, lead to incorrect accruals and, ultimately, delay settlement.

Agent and party submission for Loan Reconciliation have risen rapidly over the past 12 months and I am pleased to report that in April 2021 we hit a new record, almost doubling the submissions we saw in April 2020. The huge increase is a result of the mass adoption we have witnessed as lenders have looked to cut out the white noise associated with reconciling their positions to agents.

Success rate

Of course, submission totals only tell half the story; the success rate is also critically important if there is to be any benefit to the lenders/vendors reconciling and if there is to be confidence in the platform. On this metric, too, the news is very positive as we have consistently maintained a high success rate, with the majority of positions being delivered via direct integration (MQ) or SFTP.

With submission rates and accuracy so high, we have now been able to offer our network additional benefits. We have brought our Loan Reconciliation platform into our consolidated UI alongside ClearPar, Notice Manager and our other solutions, so users can view their positions, perform actions on trades and verify their loan notices in one place.

Having these tools in one UI was just the first step; making them interoperable was another key success we have delivered for our users. We have empowered our clients to scale their businesses by automating many of the administrative tasks they face on a daily basis, such as verifying affiliates on open trades to agents; delivering notifications of the need for borrower consent; and adding and removing Debtdomain access to deal rooms, based on holdings in Loan Reconciliation.

Cash settlement instructions

In parallel with increasing Loan Reconciliation usage, we have seen growing adoption of ADFlow, our solution for the secure exchange of cash settlement instructions (and contact details). ADFlow was developed for our Loan Reconciliation users in response to a request from our clients for an alternative to the long-established practice of exchanging settlement instructions in bespoke documents via fax and email. Our clients wanted to reduce their exposure to fraud and operational risk, and eliminate the need for call-backs, and we delivered a solution for them.

After working with the LMA and LSTA to create a standardized format for Administrative Details Forms, we developed a secure online portal where lenders can upload and manage their SSI and ADF data, and where agents and counterparties can access the details they need for their loan trade settlement or servicing events. The solution includes a four-eye check of all instructions and a full audit history of any changes. It is also integrated with ClearPar and Loan Reconciliation. This ensures trade data and settlement are synchronized with the latest settlement instructions and lender affiliation, streamlining the loan trade settlement process. Agents and counterparties can elect to view this data in the platform or have the ADF data sent from ADFlow directly to their agent and trading systems of record via ADF messaging. This reduces operational risk further by removing the need to dual key this information and eliminates the need for controls to manage a manual process.

The introduction of ADFlow has delivered significant benefits to the industry, helping firms avoid costly fraud incidents and significantly reducing their operational risk, while increasing efficiency. The success is borne out by the huge increases in adoption and usage numbers we have seen over the past year.

These are exciting times as the industry's appetite for technology, automation and innovation increases, and we look forward to continuing to work with our clients and partners to ensure they stay ahead of the curve.

Posted 12 July 2021 by David Jesson, Managing Director, Loan Platforms, S&P Global Market Intelligence

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.