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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

LIBOR to SOFR

In April 2021, Alabama followed New York’s lead and passed the LIBOR Discontinuance and Replacement Act of 2021, a bill aimed at addressing LIBOR cessation with respect to USD LIBOR contracts governed by Alabama law that include either insufficient, or no, LIBOR fallbacks.
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Continue Reading Alabama Passes LIBOR Bill Substantively Identical to New York Bill

Compare The Best Mortgage Rates, Consumer Credit Comparison

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.
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Continue Reading Eeny, Meeny, Miny, Muse; Which LIBOR Alternative Shall I Choose?

Negative Interest Rates

Testimony at a virtual hearing on Thursday, April 15, 2021, of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets of the US House Committee on Financial Services reinforced regulatory support for federal legislation to facilitate the transition from LIBOR.
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Continue Reading Recent Congressional Hearing Indicates that Federal LIBOR Transition Assistance Law Increasingly Likely

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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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Continue Reading The New York LIBOR Legislative Solution Becomes Law

Searching for Interest Rate

In a flurry of legislative activity on 24 March 2021, the New York State Senate and Assembly passed bills that, once signed by Governor Cuomo, will facilitate the transition from LIBOR of “tough legacy” contracts that are governed by New York law and that do not include adequate interest rate fallback provisions that contemplate a…

Question Mark Concept

On March 9, 2021, the US Board of Governors of the Federal Reserve System (“FRB”) issued SR 21-7, Assessing Supervised Institutions’ Plans to Transition Away from the Use of the LIBOR, providing guidance to its bank examiners on how to assess the progress of supervised institutions in preparing to transition away from U.S. dollar (USD) LIBOR as a reference rate.[1] This guidance is intended to complement the Interagency Statement on LIBOR Transition that FRB issued in November 2020, which encouraged supervised firms to cease entering into new contracts that reference LIBOR as soon as practicable and noted that entering into such contracts after December 31, 2020, would create safety and soundness risks.
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Continue Reading US FRB Issues Examiner Guidance for Assessing LIBOR Transition Progress

New year 2021 and 2020 on sandy beach with waves

In testimony on Wednesday, February 24, 2021 before the United States House of Representatives Committee on Financial Services, the Chairman of the Board of Governors of the Federal Reserve System, Jerome Powell, responded to questions regarding LIBOR transition from Representative Brad Sherman (D-CA), Chairman of the Investor Protection, Entrepreneurship and Capital Markets Subcommittee. Sherman had asked Powell: “In your view, is it necessary to have federal legislation to have a smooth transition after June 2023 when LIBOR is no longer published?”
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Continue Reading US FRB Chair Powell Signals Support for Federal LIBOR Transition Assistance Legislation

US dollar currency up growth sky cloud concept

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…

Action Plan 2021 Directional Road Sign On Yellow Background

On February 10, 2021 (and updated on October 18, 2021), the Office of the Comptroller of the Currency (“OCC”) released a self-assessment tool to assist the institutions that it regulates in preparing for the expected cessation of the London InterBank Offered Rate (“LIBOR”).[1]
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Continue Reading OCC Releases LIBOR Transition Self-Assessment Tool