Phase-Out of LIBOR: Implementing ARRC Reference Rates for Floating Rate Transactions and Derivatives, ISDA Revisions

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Wednesday, December 9, 2020

Recorded event now available

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Program Materials

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.

Description

The U.K.'s Financial Conduct Authority announced in July 2017 that it would stop requiring reference banks to quote LIBOR by the end of 2021. This will be a massive transition for financial markets because LIBOR is used to calculate floating or adjustable rates on trillions of dollars in loans, bonds, derivatives, and other financial contracts. 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 the inclusion of appropriate fallback language, including the triggers for switching to an alternative reference rate and the mechanics for how an alternative reference rate will be chosen.

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 in existing and proposed transactions.

Listen as our authoritative panel discusses the impact of the phase-out of LIBOR on various commercial and consumer loans and derivatives transactions. Our group will discuss the potential approaches for mitigating the uncertainty surrounding these changes, including using SOFR as a substitute rate. The panel will also discuss how ISDA is addressing the phase-out.

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Outline

  1. LIBOR: reasons and timeline for phase-out
  2. Impact on commercial lending: floating rate transactions
  3. Effect on derivatives
  4. Alternative rates
  5. Recommended provisions contemplating a change in reference rate under loan agreements
    1. Amendment approach
    2. Hardwired approach
  6. Determining whether to amend financial contracts

Benefits

The panel will review these and other critical issues:

  • What is the timeline for LIBOR's phase-out?
  • What kinds of financing transactions will be impacted by the phase-out of LIBOR?
  • 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 as a substitute rate?
  • What should counsel look for in ISDA agreements to confirm a suitable alternative rate?

Faculty

Breslin, William
William J. Breslin

Partner
Fried Frank Harris Shriver & Jacobson

Mr. Breslin is a member of the Firm's Asset Management Group. His practice concentrates on derivatives, futures and...  |  Read More

Aaron, Cheryl
Cheryl L. Isaac

Senior Counsel
Michael Best & Friedrich

Ms. Isaac represents financial institutions, energy companies, and commodity trading firms (including both end-users...  |  Read More

McLaughlin, Robert
Robert M. McLaughlin

Partner
Fried Frank Harris Shriver & Jacobson

Mr. McLaughlin is head of the firm's Derivatives Practice and a leading practitioner in derivative transactions of...  |  Read More

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