The End of LIBOR: Advising Investment Managers on the Transition

Asset Management Authority and Obligations, Legacy Contract Amendments, Disclosures on New Investments

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


Conducted on Wednesday, December 18, 2019

Recorded event now available

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Program Materials

This CLE webinar will analyze the legal and economic risks for investment managers and other market participants in the coming transition away from LIBOR and the steps they should take now to mitigate those risks. The panel will discuss recent SEC guidance on how to manage the transition in existing and future investments.

Description

Regulators have issued an urgent call for securities and derivatives market participants to evaluate how the imminent demise of LIBOR and entry into an alternative reference rate environment will impact their existing and anticipated contractual arrangements. In a July 12, 2019 statement the SEC highlighted the considerable risks investment managers confront in transitioning away from LIBOR. Likewise, one year earlier, then-CFTC Chair J. Christopher Giancarlo warned that “the discontinuation of LIBOR is not a possibility. It is a certainty.” Since then the CFTC and its Market Risk Advisory Committee (MRAC) have been urging market participants to identify and assess the fallback provisions of their derivatives, securities and other contracts tied to LIBOR.

Investment managers and their counsel must urgently identify, evaluate and, if necessary, negotiate or adapt to the modification of many trillions of dollars of contracts and instruments across a range of cash and derivatives markets to prepare for the potentially complex implementation of new fallbacks and floating rates.

Counsel will need to review and possibly amend legacy contracts that reference LIBOR to reflect appropriate fallback language. For new issuances, market participants should include practical amendment language regarding the transition from LIBOR to an alternative benchmark or adopt alternative reference rates and appropriate fallback language.

Investment management agreements should be reviewed to assess the authority of the investment manager to deal with LIBOR/IBOR replacement and the rights of investors to consent, object, and receive notice of such actions. Offering and deal documents should include disclosures involving the LIBOR transition. Potential valuation issues, basis exposure, repapering issues, and tax and accounting issues must also be addressed with account holders.

The transition away from LIBOR will require significant project management and input from counsel. Considerations include the scope of review and the potential use of AI for large-scale studies, contractual analysis and amendment implementation, regulatory issues, reporting requirements, and client disclosure and interaction. The LIBOR transition may also generate various sources of potential disputes and regulatory scrutiny.

Listen as our authoritative panel discusses the impact of the phaseout of LIBOR on investment managers, investment companies, and other market participants.

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Outline

  1. Background on LIBOR transition to 2021 phaseout
  2. The Secured Overnight Financing Rate (SOFR): how it differs from LIBOR
  3. Addressing LIBOR phaseout in legacy contracts
  4. Addressing LIBOR phaseout in new investment contracts
  5. Actions required of investment and fund managers
    1. Analysis of investment management and other agreements to determine the authority of the manager, rights of investors
    2. Determination of disclosure obligations under offering and deal documents
    3. Determination of appropriate benchmark replacement risks and calculations thereof
    4. Assess potential valuation issues, basis exposure, repapering issues, tax and accounting matters
  6. Managing the process: role of counsel

Benefits

The panel will review these and other relevant issues:

  • How is SOFR different from LIBOR? Are any alternatives being discussed?
  • To what extent do existing investment contracts allow for an alternative to LIBOR? What if they do not?
  • What steps should investment managers follow to perform due diligence on their portfolios and communicate any necessary adjustments to their clients?
  • What disclosures are required in connection with new offerings?

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

Hoffman, Matt
Matt Hoffman

Director
Chatham Financial

Mr. Hoffman is a Director with Chatham’s Global Real Estate team. His Chatham experience has included strategic...  |  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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