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.
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…
As 2021 quickly approaches, market participants are well on their way toward addressing the IBOR transition issues specific to their product portfolios. Structured finance products present additional levels of complexity that must be tackled.
Continue Reading Considerations for Transitioning Floating Rate Commercial Mortgage Loans Away from LIBOR
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
On October 2, 2020, the US Loan Syndication and Trading Association (“LSTA”) released for comment an exposure draft of LIBOR Replacement Provisions for Amendment of CLO Indenture and announced its intention to publish a final version in November. The LSTA stated that the purpose of the operative LIBOR replacement provisions and accompanying form of supplemental indenture is to provide a template for CLO investors and transaction parties to use in connection with a CLO transaction that does not already contain provisions to effect the transition or fallback from LIBOR to a non-LIBOR benchmark rate upon the occurrence of specified LIBOR transition events.
Continue Reading LSTA Exposes Draft Supplemental Indenture for Legacy CLOs Without Fallbacks in Order to Facilitate Transition from LIBOR
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.
Continue Reading Proposal for a Governmental IBOR Transition in the European Union