Phase-Out of LIBOR: Implementing Replacement Rates for Floating Rate Loans and Derivatives
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Banking and Finance
- event Date
Thursday, December 2, 2021
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE webinar will discuss the scheduled phase-out of LIBOR (London Interbank Offered Rate) at the end of 2021. The panel will address alternative rates and provisions recommended by the Alternative Reference Rate Committee (ARRC) of the Federal Reserve Bank of New York and the steps that lenders and finance counsel should take to amend existing transaction documents and manage new transactions. The panel will also discuss the impact on swaps and other derivatives and evaluate alternative rate language in ISDA documents.
Ms. Isaac advises a broad range of derivatives market participants - exchanges, financial institutions, asset managers, and commercial end-users, among others - on legal and regulatory matters under the Commodity Exchange Act, the Dodd-Frank Act, and related CFTC and NFA rules and regulations. Likewise, she counsels DAOs, crypto exchanges, tradfi investors, and other digital asset market participants on jurisdictional issues and best practices in an evolving regulatory landscape. Ms. Isaac has significant experience negotiating bespoke derivatives transactions in a variety of asset classes (interest rates, FX, digital assets, and commodities), including ISDA Master Agreements and related documentation. She regularly advises clients on effectively transitioning away from LIBOR.
Mr. McLaughlin is a corporate partner resident in Fried Frank’s New York office, where he is a member of the Asset Management and Financial Services Practices. He is head of the Firm’s Derivatives Practice and a leading practitioner in derivative transactions of all types, including futures, over-the-counter derivatives and cleared swaps, as well as related collateral, guarantee, custody and other credit support arrangements. Mr. McLaughlin also maintains a leading practice in repurchase, securities lending and prime brokerage and other types of trading agreements, as well as structured products, synthetic equity and fund-linked investments, credit extensions, loan trading and derivatives claim trading. His clients include hedge funds, private equity funds, investment management firms, investment and commercial banks, mutual funds, individual investors, corporations and government-sponsored entities. Mr. McLaughlin regularly advises market participants on legislative and regulatory developments concerning futures, derivatives, cleared swaps, bankruptcy and insolvency safe harbors, and market structure and facilities.
The UK's Financial Conduct Authority announced in July 2017 that it would stop requiring reference banks to quote LIBOR (the London Interbank Offered Rate) by the end of 2021. On Mar. 5, 2021, they confirmed the end dates for the transition away from LIBOR, which for most LIBOR-based instruments--loans, bonds, derivatives, and other financial contracts--will be June 30, 2023. Counsel must contemplate the phase-out when drafting agreements and reviewing existing contracts.
Alternative reference rate language varies from transaction to transaction, and in some cases, will need to be added or modified to account for the LIBOR phase-out. Counsel should review credit documents with a term beyond 2021 to ensure appropriate fallback language, including the triggers for switching to an alternative reference rate and the mechanics for choosing an alternative reference rate.
The ARRC has proposed using the Secured Overnight Financing Rate (SOFR), a broad-based Treasury repo financing rate published daily since Apr. 3, 2018, as a replacement rate, and has proposed fallback language for syndicated business loans, bilateral business loans, and floating-rate notes. However, questions remain regarding industry acceptance and how best to transition from LIBOR to SOFR, and whether other replacement rates are more appropriate, in existing and proposed transactions.
Listen as our authoritative panel discusses the impact of the LIBOR phase-out on various commercial and consumer loans and derivatives transactions. Our group will discuss the potential approaches for mitigating these changes' uncertainty, including using SOFR as a substitute rate. The panel will also discuss how ISDA is addressing the phase-out.
- LIBOR: reasons and timeline for phase-out
- Impact on commercial lending: floating-rate transactions
- Effect on derivatives
- Alternative rates
- Recommended provisions contemplating a change in reference rate under loan agreements
- Amendment approach
- Hardwired approach
- Determining whether to amend financial contracts
The panel will review these and other critical issues:
- What is the timeline for LIBOR's phase-out?
- What are the issues with alternative rate language currently contained in loan documents?
- How should floating rate forms be revised to address the phase-out and the use of SOFR or another index as a substitute rate?
- What should counsel look for in ISDA agreements to confirm a suitable alternative rate?
- What is SOFR and how does it compare to LIBOR?
- What other replacements indices are market participants considering, including BSBY, Ameribor, and Prime?
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