March 19, 2025 - On March17^th  the LSTA published drafting guidance and engagement letter inserts for green loans (“GLs”). These two new documents – Drafting Guidance for Green Loans (“Guidance”) and Green Loan Structuring Agent Engagement Letter Inserts (“GLSA Inserts”) – afford members a reference tool when structuring green loan facilities and provide information on current drafting practices as they exist in the market today. The overall presentation is similar to the LSTA’s Drafting Guidance for Sustainability-Linked Loans (“SLLs”) and Sustainability Structuring Agent Engagement Letter Inserts and hew to the foundational principles set forth in the LSTA’s 2023 Green Loan Principles and Guidance on Green Loan Principles. As in the case of SLLs, market practice for green finance is in constant flux and thus the Guidance does not purport to provide a de rigueur set of standardized provisions. Rather, the documents set forth language which reflects drafting consistencies existing across the current U.S. green loan market. The Guidance and GLSA Inserts account for the variation that exists across facility and borrower types by providing appropriate optionality in the form of alternative bracketed text. Similarly, illustrative footnotes throughout offer further color on the provisions.

We highlight below several additional themes which guided the drafting.

• Drafting Guidance for Green Loans: The Guidance contains drafting examples of Green Loan-related language for a U.S. credit facility and reflects the deliberations of the LSTA’s Sustainability Committee. It is not intended to be overly prescriptive. Structurally, the Guidance retains the schedule/annex approach to describe “Green Loan Credit Extension Provisions” which consolidates the green loan features within the documentation, reduces inadvertent events of default and permits insertion into existing loan documentation. Other discretionary features include establishment of a green loan subfacility within a larger financing, incorporation of a green loan framework pursuant to an attached schedule and language suitable for a “pure-play” borrower facility. As noted above, the area of green financings continues to raise unprecedented issues (i.e., the scope of Declassification Events, the specific content of periodic reporting, notice periods and voting protocols) and the document therefore avoids taking any advance position on these. The Guidance also intends to maintain a distinction between the Applicable Green Principles and a green framework, which is a transaction-specific set of eligibility criteria, categories and definitions applicable to Eligible Green Investments. While the LSTA offers the Guidance as an important educational tool, it should be distinguished from LSTA forms and MCAPs which indicate settled practice.

• GLSA Engagement Letter Inserts: The existence of a Structuring Agent or Loan Coordinator (terms are interchangeable) has become standard in SLLs and has carried through to GLs. While the language in any loan documentation governing this role is subject to bespoke negotiation, this document offers model provisions relating to the Green Loan Structuring Agent’s role that can be included in a U.S.-style engagement letter, where used. The provisions align with those applicable to the Sustainability Structuring Agent (“SSA”) – the Agent serves a similar role as a loan arranger and agrees to use commercially reasonable efforts to assist the borrower in its development and structuring of the green loan facility. There is no continuing role for the GLSA post-closing as, consistent with market practice, the intention was to avoid the introduction of additional risk or liability upon the GLSA.

For a walkthrough of the documentation, please see this video discussion with LSTA’s project counsel, Robert Lewis at Sidley, as supported by Morgan Oxner.

The LSTA will continue to collaborate with our peers at the LMA and APLMA to support the continued progress and advancement of green finance, and other market driven sustainable and initiatives. To that end, we note that updated versions of the SLL, Green and Social Loan Principles and accompanying Guidance will be formally published at the end of the month.

These have been published in final form and added to the LSTA’s sustainable finance library.