Publication
International Restructuring Newswire
Welcome to the Q2 2024 edition of the Norton Rose Fulbright International Restructuring Newswire.
Global | Publication | June 2021
Since our article on the topic in the December 2020 edition of Legalflyer (link), there have been further developments in the retirement of LIBOR. On March 5, 2021, the UK’s Financial Conduct Authority (as regulator of ICE Benchmark Administration, which publishes LIBOR) announced that:
Although LIBOR will still be published for the most popular USD tenors until Q2 2023, regulators have re-emphasized the need for new and refinanced transactions to no longer reference LIBOR and to prepare for legacy LIBOR deals to transition to new benchmarks.
As aircraft are a US Dollar asset, the most important risk-free rate for the aviation industry is the Secured Overnight Financing Rate (SOFR), the risk-free rate identified for US Dollars. The Alternative Reference Rates Committee of the Federal Reserve Bank of New York (ARRC) has stated that new US Dollar LIBOR lending should cease by end of Q2 2021, with the Federal Reserve Board issuing supervisory guidance to US banks “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021”. The approach taken by other regulators may vary between jurisdictions, but these statements will be persuasive.
We will increasingly start to see US Dollar lending referencing SOFR from the outset for new and refinanced facilities.
In the short term, fallback provisions, which pre-agree a mechanism for a loan facility to transition from LIBOR to SOFR on a future date, may be used, after which regulators are likely to require parties to use SOFR from the outset.
The drafting approach taken varies between markets. In the London and European markets, the Loan Market Association (LMA) ‘switch clause’ is widely used – this drafting provides more certainty for a borrower as all of the terms of transition are agreed upfront in the clause.
Whereas, in the US market, use of the ARRC recommended “hard wired approach” wording as incorporated into the Loan Syndications and Trading Association’s (LSTA) precedent facility agreements is widespread amongst US-regulated banks. This drafting pre-determines the selected rate calculation method for SOFR by reference to a waterfall and leaves the lenders with more flexibility to make “Benchmark Conforming Changes” (being the changes required to ensure that the new rate works within the context of the loan facility).
The FCA’s announcement of March 5 may have triggered certain consequences in existing finance documentation depending on the drafting formulation used.
If you would like to find out more about the latest developments of LIBOR transition, please visit our "IBOR transition – are you prepared" website.
Publication
Welcome to the Q2 2024 edition of the Norton Rose Fulbright International Restructuring Newswire.
Publication
n a long-running dispute, taking in no less than three arbitrations spanning 26 years cumulatively (involving allegations of state interference in the arbitral process), the Court has provided useful guidance on the ss.67 and 68 challenges, particularly in the context of investor-state claims.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023