Distressed Debt & Claims Trading Advisory | Buyers Beware: Revised LSTA Loan Trading Documents Create New Costs for Late Payments

On May 4, 2026, the Loan Syndications and Trading Association (LSTA) published noteworthy amendments to its Standard Terms and Conditions for Primary Allocation, Par/Near Par, and Distressed Trade Confirmations that entitle market participants to charge a late payment fee if the purchase price is not timely received by the seller (or the buyer if the purchase price is a negative number). For years, an overriding complaint within the secondary trading marketplace has been market participants on both the sell-side and buy-side paying materially late, with the purchase price sometimes not being paid until well over a week after closing. These material economic amendments now give the party owed an additional tool to make its counterparty feel economic pain when not paying on time.

Must Pay Within Two Business Days of Closing

The amendments allow a payee to demand a late payment fee if the payor remits the purchase price on or after two business days after the “assignment effective date” (the date that the administrative agent or borrower records the assignment and transfer of the debt on its books and records) or the “payoff date” (the date a payoff letter was executed and delivered or when all conditions to settlement under a proceeds letter are satisfied, except for remittance of the purchase price), as applicable. To exercise this right, the payee must invoice the payor within 30 calendar days following the date the payee receives the purchase price. The payee cannot use this right until after it receives the late payment.

Buyer Loses Interest Coupon on Performing Loans

On par/near par “performing loan” trades where the borrower is timely paying interest as of the assignment effective date, the late payment fee will pack the biggest punch. Under those circumstances, the payee can require the payor to remit the amount of the interest coupon on the purchase amount of the debt for the period from the assignment effective date through (but excluding) the date the payee received the purchase price. For a “performing loan” (as defined in the Standard Terms for par/near par confirmation), the interest rate is calculated using the most recent loan contract all-in interest rate in the applicable funding memorandum or purchase price letter.

The logic is straightforward. Essentially, the buyer loses the economic benefit of the interest accruing on the assigned loan until the buyer pays the purchase price owed. No payment, no interest.

Buyer Pays Cost of Carry on Nonperforming Loans, Payoff, and Proceeds Trades

For par/near par loan and distressed loan trades where the borrower is not current on loan payments as of the assignment effective date, the late payment fee is calculated based on the interest that would accrue during the late payment period at the “cost of carry rate” on the purchase price as determined on the assignment effective date.[1] Likewise, for loans that have been paid off in full or became proceeds before settlement, the late payment fee is the interest that would accrue at the cost of carry rate from the relevant payoff date through but not including the date the purchase price is received.

Supplement to Existing Late Payment Rights to Seller

Before these amendments became effective, the Standard Terms for both primary and par/near par trades already had a powerful preexisting tool for a seller to use when the buyer failed to timely pay the purchase price. Under the preexisting delay compensation requirement rules, a buyer is generally required to pay the seller the purchase price no later than one business day after the assignment effective date. If the buyer does not timely pay the purchase price, the seller has the right on performing loans to claw back interest accrued on the purchase amount of the debt for the delay period (generally the period from T+7 (trade date plus seven business days) through the assignment effective date).

The amount owed under this right is calculated upon the difference between the interest rate on the purchase amount of the debt versus the cost of carry rate. So if the interest rate on a loan was 9% and the cost of carry rate was 4%, the seller would have a right to demand approximately a return of 5% interest for the delay period relative to the purchase amount of debt. This calculation will depend in part on the purchase rate on the trade—the lower the purchase rate, the greater the return the seller will be entitled to demand.

Despite the power of this preexisting remedy for late payments, sellers have generally not used it against delinquent buyers. This remedy is expressly set forth within the par/near par Standard Terms as the right to a return of the “net credited amount” under Section 6.A (for paper trades) and Section 6.B (for electronic settlement trades).

A notable difference between this preexisting remedy and the new remedy for late payments is that under the existing remedy there is no express timing requirement to claw back the “net credited amount”; whereas under the new remedy, the payee must demand the late payment fee within 30 calendar days of receipt of the purchase price. Importantly, LSTA revised trading documentation made clear that using the new late payment fee does not preclude a payee from exercising any other remedy existing under the trade confirmation.

So from an economic perspective, smart payees enforcing this new late payment right will be able to “double dip” and not only ask for the late payment fee but also demand return of the net credited amount. Importantly, the right to request the return of a net credited amount does not apply for distressed loan trades. The delay compensation requirement rules only apply for par/near par and primary loan trades.

Pay on Time and Avoid Penalties

The newly added late payment fee provisions incorporated into the Standard Terms will provide sellers with a new tool to discourage buyers from not timely paying a purchase price owed on loan trades. Secondary market participants are strongly encouraged to familiarize themselves with these new rules to understand their rights and remedies. Hopefully, these new rules will motivate secondary market participants to put in place proper procedures to ensure purchase price payments are made on time.

Should you have any questions about the amendments to the Standard Terms or existing remedies for late payment of a purchase price, please do not hesitate to reach out to our Distressed Debt & Claims Trading Team.

If you have any questions, or would like additional information, please contact one of the attorneys on our Distressed Debt & Claims Trading team.

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