We are in the final days of LIBOR as we know it. Partner, Ash McDermott, discusses the recent advances in the export finance community toward LIBOR transition, with a specific focus on the question of whether export credit agencies should publish general “umbrella” guidance that would permit export loan documentation to transition to a recommended
FCA Proposes to Require Publication of Synthetic GBP and JPY LIBOR for Specified Tenors
On 29 September 2021 the UK Financial Conduct Authority (“FCA”) published Consultation Paper CP21-29: Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR), in which it set out its plans for the temporary publication of ‘synthetic’ versions of LIBOR for a narrow range of outstanding sterling and yen contracts that cannot…
The Critical Benchmarks (References and Administrators’ Liability) Bill receives its first reading in the House of Lords
The UK Government passed the Financial Services Act 2021 (the “FS Act 2021”) on 29 April 2021, which amended the UK Benchmarks Regulation ((EU) 2016/1011) (the “UK BMR”), to provide the UK Financial Conduct Authority (the “FCA“) with new and enhanced powers to oversee the orderly wind-down of critical benchmarks. In particular, the legislation addresses the risk that LIBOR cessation poses to “tough legacy contracts” (i.e., contracts that genuinely have no or inadequate fallback rate alternatives and no realistic ability to be renegotiated or amended). The Critical Benchmarks (References and Administrators’ Liability) Bill (the “Bill”) has been drafted to address these risks.
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The Benchmark Bistro in the Export Finance Market
UK Finance partner, Ash McDermott, provides a flavour of what is emerging in terms of benchmark alternatives as the end of LIBOR comes closer in his article, “What’s on the menu at the benchmark bistro?” for the 22 March 2021 edition of Berne Union’s The BUlletin.
The end is nigh: UK Finance publishes new guide on LIBOR discontinuation
The end of 2021 is fast approaching and regulators in the UK and the US remain steadfast in their encouragement for banks to stop using LIBOR where possible before that date.
In light of this, UK Finance and PwC have published Discontinuation of LIBOR – Guide for Banks and Lenders, a resource specifically focused on the transition issues faced by banks and other lenders. It is intended as a useful toolkit to support their engagement for the move away from LIBOR and to guide them to the relevant information to support preparations. The guide is especially useful for those that are less familiar with the latest detail on LIBOR discontinuation.…
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Will Amending a Facility Agreement to Move from an IBOR to an RFR Require Guarantee and Security Confirmations?
When amending a material term of a loan transaction that includes guarantees and/or security governed by the laws of several jurisdictions, it is often prudent for creditors to obtain guarantee and/or security confirmations to ensure that the amendment does not adversely affect their rights to claim under the guarantee or enforce the security. As we head toward 2021, it is well documented that loan agreements with final maturities beyond the end of 2021 that are priced by reference to an IBOR benchmark will need to be amended unless they contain fallback provisions that stipulate a replacement rate for, or procedure for replacing, the relevant IBOR. So, will changing the benchmark rate necessitate guarantee and/or security confirmations, or will this additional hurdle be something that can be avoided?
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Promised UK ‘Tough Legacy’ Legislation Released; HM Treasury Issues Supporting Policy Statement
The UK Government released its promised draft legislation, Financial Services Bill 200, on October 20, 2020, to assist the ‘tough legacy’ issue for certain LIBOR-referencing contracts by providing the UK’s Financial Conduct Authority with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR. The legislation includes the authority for the FCA to direct a change in the methodology of a critical benchmark and extend its publication for a limited time period.
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Sterling Working Group: The Latest Position on RFR Calculators and Beta Term SONIA Reference Rates
Sterling RFR Working Group Summary Papers
On 16 October, the Working Group on Sterling Risk-Free Reference Rates (“RFRWG”) announced the publication of two documents in their ongoing work to inform and ease the path of transition from IBORs. The papers summarise the current position in relation to two resources: the beta versions of Term SONIA Reference Rates (“TSRRs”) and risk-free rate (“RFR”) calculators.…
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LMA publishes latest list of RFR referencing loans
On 16 October, the Loan Market Association (“LMA”) published an updated version of a list that sets out the near risk-free rate (“RFR”) referencing loans which have been announced to date. The list is based on publicly available information and seeks to raise awareness of RFR-referencing loans by providing information on the conventions used.
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Documenting LIBOR Transition in the Loan Markets: The LMA Offers New Solutions, But Others Likely Will Follow
The LMA’S Latest Tools
On 11 September 2020, the LMA added to their complement of exposure drafts by publishing a draft multicurrency term and revolving facilities agreement incorporating rate switch provisions (the “Switch FA”). This came on the heels of a note issued by the LMA setting out optional supplementary language (the “LMA Supplement”) to be added to its existing Revised Replacement of Screen Rate Clause.
Why Is The LMA Producing These Documents Now?
The LMA has augmented its Revised Replacement of Screen Rate Clause before, but the Switch FA and the LMA Supplement were drafted in response to specific statements made by the Working Group on Sterling Risk-Free Reference Rates (“RFRWG”). Those statements (the “RFRWG Statements”) made it clear that the February 2020 form of Revised Replacement of Screen Rate Clause would not satisfy the RFRWG’s objective that after the end of Q3 2020, sterling LIBOR referencing loan products should include a contractual mechanism for conversion to a suitable SONIA-based, or other alternative risk-free, rate (“RFR”). These latest documents from the LMA are the most recent salvo in their ongoing efforts to facilitate the transition of the loan market away from LIBOR to alternative RFRs.…
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