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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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Market participants have been warned not to kid themselves. The last remaining settings of the London InterBank Offered Rate—those relating to select US Dollar tenors—are scheduled to become unavailable following publication on 30 June 2023. After this final USD LIBOR publication, the sunsetting of “the world’s most important number” will be complete.

Continue Reading No foolin’: USD LIBOR to sunset one year from today

With the inclusion of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) as Division U of H.R. 2471, Consolidated Appropriations Act, 2022 (the “Appropriations Act”) passed by the U.S. House of Representatives on 9 March 2022 and the Senate on 10 March 2022, the United States is on the cusp of a federal solution for legacy LIBOR-linked contracts that contain inadequate fallback provisions, or none at all. Indeed, the final version of the legislation provides additional legal certainty with respect to the use of non-SOFR benchmarks not included in the earlier version of the legislation passed by the U.S. House of Representatives.

Continue Reading Consolidated Appropriations Act Advances Federal LIBOR Transition Solution

With fewer than 30 days until the cessation of LIBOR, another piece of the puzzle has fallen into place for U.S. dollar LIBOR transition. On 30 November 2021, Refinitiv, the ARRC-preferred publisher of spread-adjusted SOFR-based fallback rates, announced that its USD IBOR Institutional Cash Fallbacks (“Institutional Fallbacks”), launched on 11 August 2021 as prototype rates, are now available for use as production benchmarks.

Continue Reading Refinitiv Spread-Adjusted Fallback Rates Become Production Benchmarks

On 20 October 2021, in a Joint Statement on Managing the LIBOR Transition, the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau (“CFPB”), Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and State Bank and Credit Union Regulators (the “Regulators”) emphasized their expectations that supervised institutions will transition away from LIBOR in an orderly fashion by the end of 2021. Transition preparedness will be an increasing area of supervisory focus and review.

Continue Reading Financial Regulators Clarify Key LIBOR Transition Considerations But Some Questions Remain

Despite recent regulatory “encouragement” to adopt SOFR as “preferred” by the Alternative Reference Rates Committee (ARRC), we continue to observe credit agreements in the US loan markets that use a credit-sensitive alternative rate (CSR) to SOFR.

In fact, a recent check of public filings showed eight reported credit agreements that used a CSR, specifically the

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

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

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?