On December 16, 2022, the Board of Governors of the Federal Reserve System adopted final rule 12 C.F.R. Part 253, “Regulation Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation ZZ)” (“Rule 253” or the “Final Rule”). Rule 253 identifies SOFR-based benchmark rates that will replace U.S. dollar LIBOR in certain financial contracts after June 30
Floating Rate Notes and Bonds
The New York LIBOR Legislative Solution Becomes Law
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.
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SEC Office of Municipal Securities Issue Staff Statement on LIBOR Transition
On January 8, 2021, the staff of the US Securities and Exchange Commission’s (“SEC”) Office of Municipal Securities (“OMS Staff”) issued a statement focusing on the impact of the discontinuation of LIBOR on the municipal securities markets. The statement highlights considerations for issuers of municipal securities and other “obligated persons” and municipal advisors to address…
Eye on IBOR Transition from a Structured Finance Perspective
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.
Read the full article from the Winter 2020 issue of our Structured Finance Bulletin.
A Brief Reprieve on LIBOR Cessation
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…
LIBOR Transition Assistance Legislation Introduced in New York State Senate
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.
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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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Singapore Leads LIBOR Transition in Asia
The first government to issue risk-free rate (“RFR”) referenced notes in Asia is Singapore.
In August 2020, the Monetary Authority of Singapore (“MAS”) auctioned off S$500 million of six-month floating rate notes (“FRN”) with a spread over compounded Singapore Overnight Rate Average (“SORA”) in arrears.
SORA is the recommended alternative to the Singapore Interbank Offered…
Proposal for a Governmental IBOR Transition in the European Union
The Benchmark Regulation (“BMR”) came into force in 2016 and applies since 1 January 2018. It aims to regulate benchmarks, including interest rate benchmarks such as London Interbank Offered Rate (“LIBOR”), used in the EU in order to make such benchmarks more reliable. For this purpose, the Benchmark Regulation introduced licensing and registration requirements but also obligations for users of benchmarks to deal with, and provide for plans in case of, interruptions or cessations of benchmarks. The BMR, however, does not give supervising authorities the right to directly amend financial instruments or contracts if the parties to it are unable to replace a benchmark for whatever reason. So any of these plans are subject to civil law requirements and restrictions applicable to a financial instrument or contract under its governing law.
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Depository-Institutions Repo Rate – China’s Response to LIBOR Transition
The People’s Bank of China (“PBOC”) released a white paper on August 31, expressing its intention to adopt the Depository-Institutions Repo Rate (“DR”) as the alternative substitute rate in the Chinese banking market. Several pricing indicators were used in Chinese banking market, including Repo Rate (“R”), DR, Fixing Repo Rate (“FR”), General Collateral Repo Rate (“GC”), Loan Prime Rate (“LPR”), China Interbank Offered Rate (“CHIBOR”) and Shanghai Interbank Offered Rate (“SHIBOR”). The white paper discusses the possibility of these indicators as alternative substitute rate and concludes that amongst these, DR has become the most important indicator amongst such rates in the PRC lending market. According to the white paper, DR is the indicator which best reflects the liquidity condition and financing interest rates in the banking system, and is already widely accepted by the market.
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