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On 21 July 2021, the U.S. Alternative Reference Rates Committee (“ARRC”) announced the publication of conventions and use cases for employing Term SOFR, as produced by CME Group, in transitioning loan products away from LIBOR. Although the ARRC has not yet recommended the use of Term SOFR, it published these new resources in anticipation of announcing shortly a formal recommendation for the use of Term SOFR “across financial markets.”

While generally helpful to support a smooth transition, the ARRC noted that Term SOFR will be especially helpful in the business loans market, particularly multi-lender facilities, middle market loans, and trade finance facilities, as well as in limited cases of hedges and securitizations tied to term rates.

Continue Reading Almost Time for Term SOFR

LIBOR to SOFR

In April 2021, Alabama followed New York’s lead and passed the LIBOR Discontinuance and Replacement Act of 2021, a bill aimed at addressing LIBOR cessation with respect to USD LIBOR contracts governed by Alabama law that include either insufficient, or no, LIBOR fallbacks.

Continue Reading Alabama Passes LIBOR Bill Substantively Identical to New York Bill

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On 8 July 2021, Hong Kong Monetary Authority (HKMA) issued a circular to all authorised institutions (AIs) requesting them to give a further push to promote the corporate sector’s awareness of LIBOR transition.

HKMA requested each AI to (i) distribute a leaflet (enclosed with the circular) by 31 July 2021 to all of its corporate customers that have outstanding LIBOR-linked contracts with the AI; and (ii) send an email confirmation to HKMA after completing that exercise.

Continue Reading HKMA directs all AIs to distribute LIBOR leaflet to corporate customers by 31 July 2021

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On July 6, 2021, the Financial Stability Board released its latest Progress Report to the G20 on LIBOR Transition Issues. The report finds that, given the extent of risks associated with a failure to prepare adequately for the transition, the onus of action is on market participants. The FSB believes that the tools necessary to complete the transition are currently available, and have been for some time. Over the past several years, market participants have established mechanisms to use compounded risk-free rates (RFRs) not only in derivative markets, where use of RFRs was already common, but also in the cash markets. Firms now have certainty about the cessation timeline, and the fixing of spread adjustments by the International Swaps and Derivatives Association (ISDA) creates a clear economic link between LIBOR and selected RFRs, providing clarity for market participants to engage in discussions about active transition of LIBOR referencing contracts that expire after end-2021.

Continue Reading Financial Stability Board Releases Latest Progress Report on LIBOR Transition, Urging Action to Complete Transition by Year-End and Calling Out the Loan Markets

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By now most, if not all, financial market participants know that the recommended alternative for the London InterBank Offered Rate (“LIBOR”) for U.S. Dollars is the Secured Overnight Funding Rate (“SOFR”). Many also are aware that, in addition to SOFR, five additional benchmark rates and/or spread adjustments have been proposed to replace LIBOR. These alternative benchmarks generally capture the cost of unsecured bank borrowing, which is the cost that LIBOR also reflects and which is a rate that is more relevant to the way many banks fund themselves than SOFR, which is a secured overnight rate based on transactions in U.S. Treasury securities.

Continue Reading Eeny, Meeny, Miny, Muse; Which LIBOR Alternative Shall I Choose?

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On 29 April 2021, the Financial Services Act 2021 (“the Act”) received Royal Assent and became law in the United Kingdom. The Act introduced reforms to a number of key UK financial services frameworks, which also represent the first major changes to the UK regulatory landscape following the UK’s departure from the European Union on 31 December 2020. One area of reform includes amendments to the UK Benchmarks Regulation (“UK BMR”).

Continue Reading Legislative solutions to tough legacy contracts are passed into UK law

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Testimony at a virtual hearing on Thursday, April 15, 2021, of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets of the US House Committee on Financial Services reinforced regulatory support for federal legislation to facilitate the transition from LIBOR.

Continue Reading Recent Congressional Hearing Indicates that Federal LIBOR Transition Assistance Law Increasingly Likely

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On 31 March 2021 the Singapore Steering Committee for SOR and SIBOR Transition to SORA (“SC-STS”) published a report providing guidance on new industry timelines to cease issuance of SOR derivatives and SIBOR-linked financial products.  On the same day SC-STS and the Association of Banks in Singapore issued a joint press release (the “Press Release”) relating to the publication of the SC-STS report.

Continue Reading Singapore Reiterates the Need for Active Transition to SORA

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On April 7, 2021, the proposed New York “legislative solution” for legacy USD LIBOR contracts became Article 18-C of the New York General Obligations Law. Article 18-C is primarily aimed at USD LIBOR contracts, securities or instruments (e.g., floating rate notes (“FRNs”), loans, securitizations and mortgages) with the 2006 ISDA Definitions LIBOR fallbacks, or no fallback provisions at all, and which are governed by New York law. This article focuses on the law’s effect on USD LIBOR FRNs.

Continue Reading The New York LIBOR Legislative Solution Becomes Law

Global Currencies

Today the German Banking Association (Bundesverband deutscher Banken – BdB) published its Supplementary Agreement for IBOR succession (Zusatzvereinbarung für IBOR-Nachfolgeregelung (IBOR-Zusatzvereinbarung)), a template agreement for the transition away from LIBOR under the German Master Agreement for Financial Derivatives Transactions (Deutscher Rahmenvertrag für Finanztermingeschäfte – DRV). The DRV is not covered by the ISDA 2020 IBOR Fallbacks Protocol. The BdB’s new template agreement does not provide for a protocol solution; rather, it provides for bilateral agreements that broadly reflect the provisions of the ISDA 2020 IBOR Fallbacks Protocol. The bilateral agreement amends the underlying DRV documentation and is governed by German law. It covers all five of the key LIBOR currencies: USD, GBP, EUR, CHF and JPY. The agreement is intended to be a suitable fallback within the meaning of the EU Benchmark Regulation. By way of further annexes and optional elections, it allows the parties to make several choices to customise the template agreement. At this time the template agreement is only available in the German language.

This new template agreement complements the previously published EONIA to €STR template agreement, which we discussed in our earlier blog post, Documenting Benchmark Transition Under the German Master Agreement for Financial Derivatives Transactions.