Slaughter and May | Azadeh Nassiri, Suhaib Aslam, Kathrine Meloni and Natalie Butchart
Year in review
Keeping pace with the continuous stream of market, legal and regulatory developments remains a persistent challenge for participants in the loan market. The areas discussed below reflect both long-standing features of loan documentation debate and more recently emerging issues. In relation to sustainable finance, a sufficient level of consensus now enables the LMA to address certain matters through template documentation and the provision of guidance. In respect of other issues, for example, how to address concerns arising out of liability management exercises, documentation continues to evolve and adapt.
Sustainable finance
Overall, global sustainable debt volumes are estimated to have fallen by about a fifth to around US$1.6 trillion in 2025, driven by a steep decline in SLL and green loan issuances. The decline can be attributed to multiple headwinds, from anti-ESG sentiment in certain markets, to more product-specific concerns, most notably whether sustainable linked instruments offer sufficient benefit to borrowers compared with the reputational risk and friction costs involved. There is optimism that as the ISSB framework is implemented and good quality, audited non-financial disclosures become more widely available this material can be leveraged by borrowers to support further growth in this market.
The LMA and its sister trade associations continue to refine their guidance and documentation to assist the further development of the sustainable lending market. A notable addition, in November 2025, was the publication of a Guide to Transition Loans, which includes draft Transition Loan Principles designed to support the mobilisation of capital towards entities and projects that contribute to meaningful transition goals. These are expected to be developed into Transition Loan Principles (to sit alongside the existing Green, Social and Sustainability-Linked Loan Principles) during the course of 2026.
Liability management exercises in Europe
Liability management has been a hot topic on both sides of the Atlantic for a number of years. Liability management is an umbrella term that covers a wide range of transactions that allow a borrower to use flexibility in financing documents to amend and extend, sell assets or amend its capital structure (sometimes together with a security enforcement or formal restructuring procedure). The more aggressive cases involve the real or credible threat of “creditor-on-creditor violence”. These transactions have been less common in Europe than in the US to date, but – with several transactions proposed in Europe in 2025 – debate continues as to whether such creative transactions will continue to proliferate, as parties test the boundaries of their credit documents and accepted market practice, or whether litigation risk and the tightening of documentation will have a chilling effect.
Implementation of Basel 3.1
Basel 3.1 makes some significant changes to the prudential regulation. Implementation in the UK has been delayed and will now begin on 1 January 2027 (with proposals to delay the internal model approach under the Fundamental Review of the Trading Book by a further year to January 2028), to allow time for greater clarity to emerge about US implementation plans. The date for full implementation remains unchanged at 1 January 2030.
The impact of Basel 3.1 will vary between financial institutions and jurisdictions. The knock-on effects on corporate borrowers will, in some cases, depend on the borrower’s credit rating (if any). In the longer term, it may lead banks to sell positions in loans that are no longer capital-efficient, which could give rise to further opportunities for non-bank lending and private credit investors.
Replacement of IAS 1 with IFRS 18
In December 2025, following a period of consultation, the UK Endorsement Board formally adopted IFRS 18.
IFRS 18 is a new accounting standard that will supersede IAS 1 (on the presentation and disclosure of financial statements) for accounting periods beginning on or after 1 January 2027, although early adoption will be permitted. IFRS 18 imposes some significant new requirements in terms of the presentation and components of certain aspects of IFRS financial statements, in particular in the income statement. Key changes include: (1) the presentation of two new and defined subtotals in the income statement (“operating profit” and “profit before financing and income tax”); (2) new requirements for disclosures regarding management performance measures such as adjusted profit and loss measures, including adjusted EBITDA; and (3) enhanced requirements for the grouping of information. These changes may impact certain financial metrics used in lending terms, depending on how they are drafted and used. This will need to be assessed on a case-by-case basis.
This article first appeared on Lexology | Source
