If a letter of credit facility is included in leveraged facilities, the bank or banks that are to issue letters of credit are issuing banks.  The letters of credit are fronted by one or more issuing banks and backed by indemnities from the borrowers and the other lenders.  The LMA Leveraged Facilities Agreement assumes that one or more lenders commits at the outset to be an Issuing Bank.

A hedge counterparty is the party to any hedge transaction entered into by the borrower in an LMA leveraged finance agreement for the purpose of hedging interest rate and any exchange rate risks in relation to the senior and mezzanine facilities.  Lenders usually seek to impose a requirement that the hedging requirements of the company group be given to their affiliates.  The hedge counterparty is an original party to the document or can accede to the facility after signing.

The borrower is required to confirm in a letter to the arranger that interest rate hedging will be obtained within a certain period of time after completion of the acquisition, for a specified percentage of the funded debt, and for a specified period of time, in order to create a greater degree of certainty over the funding costs.

The hedging strategy for the facilities is documented in a hedging letter delivered as a condition precedent to the transaction.  A hedging agreement is any master agreement, confirmation, schedule or other agreement entered into by the borrower and a hedge counterparty to hedge the interest rate and any exchange rate risks in relation to the facilities.  The hedging agreement will be implemented and maintained as agreed in accordance with the hedging letter.

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