As preparation for the transition from the London Interbank Offered Rate and similar interbank offered rates to replacement benchmark interest rates quickly accelerates, we explore a number of recent core global developments affecting structured finance products.
Paul Forrester is a respected corporate finance and securities lawyer whose practice is especially focused on structured credit, including collateralized loan obligations, energy (including oil and gas, utilities, shipping, refinery and pipeline) financings and project development, and financing (especially concerning renewable energy, industrial, petrochemical, power and transportation projects and infrastructure).
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On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of U.S. Dollar LIBOR (“USD LIBOR”) and other IBORs, lowered the pressure with respect to the upcoming cessation of USD LIBOR. IBA announced that, following a consultation in December and January, (i) it intends to cease publication of 1-week and 2-month USD LIBOR at the…
On November 30, 2020, ICE Benchmark Administration Limited (“IBA”) announced its intention, in early December 2020, to consult on the proposed cessation of the publication of:
- the one-week and two-month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021; and
- the overnight and one-, three-, six- and 12-month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.
IBA expects to close the consultation for feedback by the end of January 2021. IBA also noted that any publication of the overnight and one-, three-, six- and 12-month USD LIBOR settings based on panel bank submissions beyond December 31, 2021, will need to comply with applicable regulations, including as to representativeness.
On November 18, 2020, ICE Benchmark Administration (“IBA”), the authorized administrator of LIBOR regulated by the UK Financial Conduct Authority (“FCA”), announced that it will consult on its intention to cease publication of all tenors of euro, sterling, Swiss franc and yen LIBOR after December 31, 2021, subject to confirmation following IBA’s consultation and any rights of the FCA to compel continued publication by IBA. IBA is still in discussions with the FCA, official sector bodies, and panel banks regarding the future of US Dollar LIBOR.
Continue Reading “The End is Nigh”: UK FCA Issues Consultations Regarding Expected New Benchmark Powers in Response to ICE Benchmark Announcement; ISDA Issues Related Statement
The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) released an Interagency Statement on Reference Rates for Loans on November 6, 2020, in which they reiterated that they do not endorse SOFR—the Secured Overnight Financing Rate—or any other specific replacement rate for the London Interbank Offered Rate (“LIBOR”), for use in loan transactions.
Continue Reading “To SOFR or Not to SOFR?”: Prudential Banking Regulators Encourage Fallback Provisions to an “Appropriate” LIBOR Replacement Rate
In a detailed 25-page memorandum to U.S. prudential banking regulators, the Alternative Reference Rates Committee detailed concerns regarding the transition from LIBOR to SOFR and possible effects on current U.S. bank regulatory capital and liquidity requirements. In the memorandum, the ARRC makes several preliminary recommendations regarding changes to such requirements, in order to facilitate such transition and avoid unintended disincentives or other adverse regulatory consequences.
Continue Reading ARRC Requests Changes to Bank Regulatory Capital and Liquidity Requirements to Facilitate Transition from LIBOR to SOFR
On October 28, 2020, New York State Senator Kevin Thomas introduced Senate Bill S9070, which would add a new Article 12 to New York’s Uniform Commercial Code that substantially adopts the language from the proposed legislative solution produced by the Alternative Reference Rates Committee (ARRC) in March 2020. For some market participants, this announcement may trigger hearing the Halleluiah chorus from Handel’s Messiah, while others may still be asking why it took so long, and still others may be asking why bother given its potential limitations.
Continue Reading LIBOR Transition Assistance Legislation Introduced in New York State Senate
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.
Continue Reading Promised UK ‘Tough Legacy’ Legislation Released; HM Treasury Issues Supporting Policy Statement
Perhaps responding to complaints about the lack of global coordination of transition for the expected cessation of LIBOR by December 31, 2021, the Financial Stability Board (“FSB”) issued a Global Transition Roadmap (“GTR”) for LIBOR on October 16.
Continue Reading Financial Stability Board Issues Global LIBOR Transition Roadmap
On October 13, 2020, the Division of Market Oversight of the Commodity Futures Trading Commission (“CFTC”) issued swap transaction and pricing data reporting relief to specific derivatives clearing organizations (“DCOs”) and market participants participating in upcoming DCO auctions that will help transition certain cleared swaps from discounting using the Effective Federal Funds Rate to the Secured Overnight Financing Rate. This discounting transition is an essential part of the industry-wide initiative to transition from swaps that reference the London Interbank Offered Rate, and other interbank offered rates, to swaps that reference alternative benchmarks.
Continue Reading US CFTC Provides Reporting Relief for Swaps Related to Upcoming DCO Auctions Required for LIBOR Transition