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The 2024 LSTA Operations Technology Conference held last week had participants discussing all things digital transformation and collaboration, within the scope of complex products and processes, and extended settlement times. The market is growing, particularly private debt markets—with syndicated loan volumes also returning to elevated levels— bringing increased opportunities, a notable uptick in trading, and more focus from participants. The market buzz was fully in view at LSTA. It’s an exciting time to be part of the loans market.
On the flip side, increased volumes further highlight the escalating administrative burdens around the management of loan products. One key takeaway from LSTA is that the market is being propelled to accept the need for increased digital transformation and data-centric processes.
A complex, high-volume market with a manual heavy process
Loans processing is inherently complex, underscored by LSTA speakers highlighting the possibility of up to 50 distinct event types between agents and lenders. Each one must be captured and sequenced, even for straightforward loan processes. Agents and lenders grapple with how to effectively manage intricate, high-volume data flows across the loan transaction lifecycle, starting with asset and deal setup within loan processing systems through to valuation and reporting.
This complexity is further compounded in the case of products like Collateralized Loan Obligations (CLOs). An unwelcome truth is that the bulk of these processes are still handled manually, with periodic manual reconciliations. This is not an efficient process and opens the door to errors. As an example, CLO Trustees must work with upstream CLO Managers to ensure all loan transactions have been properly accounted for, and to ensure cash availability for the CLO waterfall is correct before payments are sent to downstream CLO investors. This process requires extensive communication between CLO Managers and Trustees. Many Trustees struggle to complete this process bi-monthly and more frequently due to the intense data reconciliation requirements.
The loan market has a notable problem with settlement times, often averaging close to T+20 for standard trades. This protracted timeline is in stark contrast to securities markets, many of which are already operating at T+1. The loan market ecosystem suffers from a range of challenges such as sluggish manual document review processes, the necessity to restructure debt for new loan arrangements, reinvestment restrictions and other factors, all of which contribute to this problem.
Digitization and digital transformation for market transformation
Digitalization and digital transformation are crucial for realizing enhanced efficiencies within loan markets. Existing systems are fragmented, with little access to usable, accurate, real-time data for informed decision-making. The market clearly understands the need to strive towards frictionless data movement characterized by transparency and accuracy to manage escalating volumes and investor demands for swifter, more precise settlement processes and information dissemination.
As an industry, attempts to improve digitalization are in play with major banks working towards an electronic data flow for all transaction data in the loan market. Others are looking at much more detailed automation processes and the use of AI.
The loans market is severely fragmented, with notable diversity in data types and sources as well as for workflows and processes. The use of technology to solve for both complexity and increased volume is undisputable, particularly if genuine interoperability is to be achieved. Collaboration and consistency will go a long way in transforming the ecosystem, with automation acting as the bridge that supports the digitization and transformation of data for use across new and existing workflows. Many key players in the loan market are beginning to explore automation as part of their process.
Automate and manage your data with Xceptor
At Xceptor, we prioritize delivering AI-powered automation tools for credit and loan lifecycle management so that clients can streamline their operations, digitize data, and improve decision-making processes across document ingestion, transaction processing and workflow, and data integration and reporting. By ingesting and extracting data across all document types we kickstart the digitalization process, and feed this transformed data directly into required loan transaction workflows.
We work with clients to automate and integrate many of their processes, with workflow dashboards available for review and monitoring. On average, our solutions lead to an 86% reduction in trade capture incidence and an improvement in trade processing time, with corresponding cost savings. As these markets continue to grow, our clients need their people looking for opportunities and adding value, not manually processing endless reams of paper.
For more information, reach out to Xceptor.
