The German Master Agreement for Financial Derivatives Transactions (Rahmenvertrag für Finanztermingeschäfte – the “DRV”) is published by the German Banking Association (Bankenverband) and can be considered the German law equivalent of the ISDA Master Agreement. Like the ISDA Master Agreement, standardised Annexes are used to document specific provisions, for example special early termination provisions, as well as to document the posting of collateral, which is done via the Collateral Addendum (Besicherungsanhang – the “BSA”), including the Variation Margin and Initial Margin BSA.
The Bank of Thailand currently administers and publishes two reference rates:
- the Thai Baht Interest Rate Fixing (“THBFIX”), which uses USD LIBOR as a component, and is more widely used as a reference rate for (a) derivatives, notes and loans, and (b) market-to-market valuations; and
- the Bangkok Interbank Offered Rate (“BIBOR”), which is a forward looking interest rate benchmark reflecting the Thai Baht local market that was introduced in 2005 but, due to a lack of underlying liquidity, is not often preferred.
The demise of LIBOR in 2021 will affect the THBFIX reference rate but not BIBOR, which will continue to be published by the Bank of Thailand.
Read the full article (PDF).
The Steering Committee for the Singapore Dollar Swap Offer Rate (“SOR”) transition to the Singapore Overnight Rate Average (“SORA”) has actively facilitated the transition from SOR to SORA. Singapore has been leading the charge in Asia on LIBOR transition matters, with many industry leaders making early shifts towards SORA as the new interest rate benchmark to replace US Dollar LIBOR-linked SOR, which traditionally has been used to price bonds and loans to large institutions.
When amending a material term of a loan transaction that includes guarantees and/or security governed by the laws of several jurisdictions, it is often prudent for creditors to obtain guarantee and/or security confirmations to ensure that the amendment does not adversely affect their rights to claim under the guarantee or enforce the security. As we head toward 2021, it is well documented that loan agreements with final maturities beyond the end of 2021 that are priced by reference to an IBOR benchmark will need to be amended unless they contain fallback provisions that stipulate a replacement rate for, or procedure for replacing, the relevant IBOR. So, will changing the benchmark rate necessitate guarantee and/or security confirmations, or will this additional hurdle be something that can be avoided?
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.
On 12 November 2020, the Asia Pacific Loan Market Association (“APLMA”) published two discussion draft facility agreements (the “Facility Agreements”) referencing risk-free reference rates (“RFRs”) for US dollar syndicated loan transactions in the Asia Pacific region. Until recently, there has been a lack of market standard for RFR calculation formulae, pricing methodology, and institution operational practice in the Asia loan market.
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.
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.
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.
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.