Phase-Out of LIBOR: Revising Floating Rate Loans to Implement Alternative Reference Rates, ISDA Revisions

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


Conducted on Thursday, July 9, 2020

Recorded event now available

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Program Materials

This CLE webinar will discuss ramifications of the scheduled phaseout of LIBOR (London Interbank Offered Rate) at the end of 2021 and outline steps real estate and commercial finance counsel must take now to review and consider amendments to existing floating-rate loan documents. The panel will discuss alternatives to LIBOR and best practices for incorporating alternative rate language into form documents.

Description

The UK's Financial Conduct Authority announced in 2017 that it would stop requiring reference banks to quote LIBOR by the end of 2021. LIBOR is used in calculating floating rates on trillions of dollars in loans, bonds, derivatives, and other financial contracts, including adjustable-rate mortgage loans. Real estate and finance counsel must contemplate the phaseout when drafting loan documents and reviewing or amending existing loan documents.

The proposed U.S. replacement for U.S. dollar LIBOR is the Secured Overnight Financing Rate (SOFR), a broad-based Treasury repo financing rate recommended by the Alternative Reference Rate Committee (ARRC) of the Federal Reserve Bank of New York (N.Y. Fed). The N.Y. Fed has been publishing overnight SOFR rates since April 2018, and in March 2020 began publishing compounded averages of SOFR over rolling 30-day, 90-day, and 180-day periods (the SOFR Averages), to better define the calculation of SOFR.

The ARRC released proposed fallback language, which provides valuable guidance for parties in negotiations over either a new credit agreement or an amendment to an existing credit agreement linked to LIBOR. They suggest two basic approaches to LIBOR fallback language: a "hardwired approach," which explicitly references variations on SOFR, and an "amendment approach," which refers to the then-existing market convention should LIBOR cease to be published.

Counsel should review loan documents with a term beyond 2021 to ensure that fallback language is incorporated, along with appropriate triggers for switching to an alternative reference rate and the mechanics for how an alternative reference rate and related spread adjustment will be chosen.

Listen as our authoritative panel discusses the impact of the phaseout of LIBOR and the use of SOFR as a substitute rate and examines options for approaching the uncertainty surrounding the coming change. The panel will also discuss how ISDA is addressing the phaseout.

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Outline

  1. LIBOR: reasons and timeline for phaseout
  2. Impact on floating-rate transactions
  3. Impact on securitized loans
  4. Alternative reference rates: SOFR, others
  5. Recommended fallback provisions contemplating a change in reference rate under loan agreements
    1. Amendment approach
    2. Hardwired approach
  6. Impact on derivatives: ISDA adjustment provisions
  7. Legacy assets; legislative proposals

Benefits

The panel will review these and other key issues:

  • What is the timeline, and what kinds of transactions will be impacted by the phaseout of LIBOR?
  • What are the issues with alternative rate language currently contained in floating-rate loan documents?
  • How should the floating rate forms be revised to address the phaseout given the current uncertainty as to the substitute rate?
  • What should counsel look for in ISDA agreements to confirm a suitable alternative rate?

Faculty

Goodman, Gary
Gary A. Goodman

Partner
Dentons

Mr. Goodman has extensive experience with financing transactions, specifically in the area of real estate finance,...  |  Read More

Kudenholdt, Stephen
Stephen S. Kudenholdt

Partner
Dentons

Mr. Kudenholdt is Dentons' Head of Structured Finance and a member of the US Capital Markets practice. He is...  |  Read More

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