Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
Thought Leadership | News and Developments | Upcoming Events
New Rev Proc 2020-44 Provides Limited Relief for Amending Legacy Contracts to Add IBOR Fallbacks
Eye on IBOR Transition blog post, 12 October 2020
Revenue Procedure 2020-44 provides retroactive but limited relief for amending specific types of legacy contracts to add fallback mechanics for LIBOR or other IBORs, provided such amendments generally follow select model contract language recommended by the ARRC and ISDA.
ISDA Board Announces Forthcoming Launch of Fallbacks Supplement and Protocol
Eye on IBOR Transition blog post, 10 October 2020
ISDA published a statement on October 9 that its IBOR Fallbacks Supplement and Protocol will launch on October 23, and the ARRC and Federal Reserve Board issued supporting statements.
The LSTA Proposes Changes to Trading Documents for LIBOR Transition
Eye on IBOR Transition blog post, 8 October 2020
The LSTA has commenced the revision of its trading documentation in order to clarify the applicable interest rate to be used to calculate delayed settlement compensation on the mixture of LIBOR- and SOFR-based loans trading in the market.
LSTA Exposes Draft Supplemental Indenture for Legacy CLOs Without Fallbacks in Order to Facilitate Transition from LIBOR
Eye on IBOR Transition blog post, 7 October 2020
The LSTA published an exposure draft of operative provisions and template supplemental indenture for use in connection with a CLO transaction that does not already contain provisions to effect the transition from LIBOR to a non-LIBOR benchmark rate upon the occurrence of specified LIBOR transition events.
A Credit-Sensitive Supplement to SOFR: Borrowers’ Objections
Eye on IBOR Transition blog post, 5 October 2020
While some banks believe that the interest rate on SOFR-priced loans should be subject to increase by an additional spread that would reflect credit risk at a particular time, borrowers have pointed out some of the problems that they see with a credit-sensitive supplement to SOFR.
TAR Tools Have Some Explaining to Do
Eye on IBOR Transition blog post, 2 October 2020
Traditional technology-assisted review tools can be leveraged to help businesses with their LIBOR transition projects.
ISDA Raises Starter Pistol on IBOR Transition Race
Eye on IBOR Transition blog post, 30 September 2020
On September 23, ISDA’s CEO provided an updated timetable of the remaining steps to publication and effectiveness of the ISDA IBOR Fallbacks Supplement and IBOR Fallbacks Protocol.
SOFR Starter Kit Tools that Should be Adopted Immediately
Eye on IBOR Transition blog post, 25 September 2020
The ARRC’s SOFR Starter Kit brings together the numerous resources that the ARRC has published to implement its key recommendations, including links to its Best Practices, syndicated loan conventions, refreshed recommended business loans fallback language, and an internal systems transition guide.
Singapore Leads LIBOR Transition in Asia
Eye on IBOR Transition blog post, 25 September 2020
Discussing recent IBOR transition developments in Singapore and notable RFR-based deals in Asia.
Proposal for a Governmental IBOR Transition in the European Union
Eye on IBOR Transition blog post, 25 September 2020
The European Commission has proposed an amendment to the EU Benchmark Regulation to enable supervising authorities to amend certain financial instruments or contracts by way of a directly applicable regulation, if necessary to achieve a benchmark transition without substantial market deterioration and litigation risks.
Three LIBOR Transition Considerations for Syndicate Lenders
Eye on IBOR Transition blog post, 24 September 2020
One of the most ubiquitous aspects to LIBOR-transition-related fallback provisions under the ARRC’s recommended amendment approach for syndicated loans is limiting or removing syndicate members’ consent rights to the replacement rate. We list some LIBOR-transition-related issues that syndicate members should consider before making a commitment to lend.
Depository-Institutions Repo Rate – China’s Response to LIBOR Transition
Eye on IBOR Transition blog post, 24 September 2020
The People’s Bank of China released a white paper on August 31, expressing its intention to adopt the Depository-Institutions Repo Rate as the alternative substitute rate in the Chinese banking market.
Documenting LIBOR Transition in the Loan Markets: The LMA Offers New Solutions, But Others Likely Will Follow
Eye on IBOR Transition blog post, 24 September 2020
On 11 September 2020, the LMA added to their complement of exposure drafts by publishing a draft multicurrency term and revolving facilities agreement incorporating rate switch provisions. This came on the heels of a note issued by the LMA setting out optional supplementary language to be added to its existing Revised Replacement of Screen Rate Clause.
An Update on Interest Rate Conventions in the SONIA-Linked Floating Rate Note Markets
Eye on IBOR Transition blog post, 24 September 2020
Discussing the lookback, weighting, and observation shift conventions being adopted in the SONIA-linked floating rate note market.
United States – Derivatives
ARRC Supports Forthcoming ISDA IBOR Fallbacks Protocol and Encourages Adherence
ARRC, 9 October 2020
“It is essential that market participants be prepared to adhere to the Protocol to help address both individual firm risks and systemic risks associated with the discontinuation of LIBOR.”
Federal Reserve Board Supervision and Regulation Letter SR 20-22: ISDA IBOR Fallback Protocol and IBOR Fallback Supplement
Federal Reserve, 9 October 2020
The Federal Reserve stated that it strongly supports the transition away from LIBOR and expects supervised institutions to manage the risks associated with this transition in a manner commensurate with their size and risk profile.
Business Review Letter 20-8 re DOJ enforcement intentions in connections with ISDA’s amendment of standardized documentation to account for IBOR cessation
U.S. Department of Justice, 1 October 2020
“Based on our investigation and ISDA's representations regarding its proposal to amend its standardized documentation to include the Proposed Supplement and Proposed Protocol, the Department has concluded that ISDA's proposal is unlikely to produce anticompetitive effects, and ISDA's proposal has the potential to offer substantial benefits to the financial services industry. Accordingly, the Department has no present intention to challenge ISDA's proposal to amend its standardized documentation.”
United States – General
Revenue Procedure 2020-44
U.S. Internal Revenue Service, 9 October 2020
On October 9, the US Internal Revenue Service released Revenue Procedure 2020-44, providing retroactive but limited relief for amending specific types of legacy contracts to add fallback mechanics for LIBOR or other IBORs.
Frequently Asked Questions Regarding the RFP for the Administration of Recommended Spread Adjustments and Spread-Adjusted SOFR Rates to Facilitate Contractual Fallbacks
ARRC, 9 October 2020
The ARRC addresses technical questions relating to the September 2 request for proposal.
Frequently Asked Questions Regarding the ARRC’s Request for Proposals for the Publication of Forward-Looking Term SOFR Rates
ARRC, 7 October 2020
The ARRC addresses technical questions relating to the September 10 request for proposal.
The LIBOR Countdown Has Not Stopped - speech by EVP and General Counsel, Michael Held
NY Fed, 29 September 2020
“What is most important is that you move off of LIBOR and do it now.”
Transitioning Away from LIBOR: Understanding SOFR’s Strengths and Considering the Path Forward – speech of SVP, Nathaniel Wuerffel
NY Fed, 18 September 2020
Reviewing the reasons for transition away from LIBOR and for the choice of SOFR as a replacement, and discussing the transition challenges for commercial loan products.
United Kingdom – Derivatives
The FCA and the Bank of England encourage market participants in further switch to SONIA in interest rate swap markets
FCA/BOE, 28 September 2020
Following close engagement with market participants, the FCA and Bank of England support and encourage liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 27 October this year.
UK – General
From LIBOR to SONIA: a bridge to the future – speech by Executive Director, Andrew Hauser
BOE, 21 September 2020
Delivering three key messages: “LIBOR transition affects every company that borrows in sterling; there is time if you start now; and for those needing to transition, there is help, and lots of it.”
Europe – General
Summary of responses to the ECB’s public consultation on the publication of compounded term rates using the €STR
ECB, 7 October 2020
Main takeaways include broad agreement with the proposed methodology for calculating compounded rates and index values, the proposed day-count convention, the selection of maturities, and ECB as the proposed publisher of compounded term rates.
ECB publishes statement of compliance of €STR with IOSCO Principles for Financial Benchmarks
ECB, 30 September 2020
The European Central Bank has published a statement of compliance with the Principles for Financial Benchmarks developed by the International Organization of Securities Commissions, describing how the ECB complies with these principles, and therefore with international best practice, in its administration of the €STR.
Executive Summary of 29 September 2020 Working Group Meeting
SNB, 30 September 2020
Topics discussed include adherence to ISDA’s IBOR Fallbacks Protocol, the volume of SARON-based cash products, loan convention recommendations, fallback language, and the handling of legacy trades.
2021: A Defining Moment for The Interest Rates Reform – speech by Chair, Steven Maijoor
ESMA, 21 September 2020
“Only coordinated efforts by both the public and the private sectors will make the interest rates reform a global success story. The extensive work already delivered in many jurisdictions across the globe has laid foundations for a successful interest rates reform.”
Global – Derivatives
ISDA Board Statement on the IBOR Fallbacks Supplement and Protocol
ISDA, 9 October 2020
“ISDA will launch the IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol on October 23, 2020. The supplement and the amendments made by the protocol will take effect on January 25, 2021.”
RFR Conventions and IBOR Fallbacks – Product Table
ISDA, 28 September 2020
The product table sets out how the fallbacks in ISDA’s amended standard documentation would function for various different products, including certain non-linear products. The chart also sets out a comparison of the standard conventions for the same products that reference IBORs and the standard and/or expected conventions for such products that reference RFRs as of the date of the document.
Updating the Fallbacks Timetable
ISDA, 23 September 2020
Describing the expected timetable for publishing the ISDA IBOR Fallbacks Supplement and IBOR Fallbacks Protocol., which is expected to take effect in mid- to late-January 2021.
ISDA Quarterly – Asian Options
ISDA, 3 September 2020
Exploring the progress firms in the Asia-Pacific region have made on LIBOR transition, as well as efforts to build liquidity in alternatives to local interbank offered rates. As big users of LIBOR, Asian institutions have large legacy exposures and “prompt action is needed now to deal with them.”
Global – General
BIS Working Paper No 891 - At the crossroads in the transition away from LIBOR: from overnight to term rates
Bank for International Settlements, 8 October 2020
Evaluating how new floating-rate loans can be based on risk-free overnight rates, the chosen successors to LIBOR and ways to minimize basis risk, and concluding that the ideal option to reduce basis risk is to use a shortened observation period when computing term rates based on past overnight rates.
Interest Rate Benchmark Reform–Part 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16
IFRS, 27 August 2020
The Phase 2 amendments—the final set—address issues that might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate.
IFRS Taxonomy 2020: Interest Rate Benchmark Reform-Phase 2
IFRS, 27 August 2020
To reflect the Phase 2 amended disclosure requirements, which added new disclosure requirements, the International Accounting Standards Board proposes to add four elements and one table to the IFRS Taxonomy, and has issued this consultation to seek market feedback on the proposed changes.
The ISDA Fallback Protocol
IBOR Transition Webinar Series, 22 and 23 October 2020
Europe: 22 October, 2020 - 5:00 p.m. to 5:30 p.m GMT and 23 October, 2020 - 4:00 p.m. to 4:30 p.m. GMT
United States: 22 October, 2020 - 12:00 p.m. to 12:30 p.m EDT and 23 October, 2020 - 11:00 a.m. to 11:30 a.m. EDT
Join Mayer Brown Partners Ed Parker, Chris Arnold and Curtis Doty for a discussion of the key features of the ISDA IBOR Fallbacks Protocol and its underlying document template, as well as related issues, including adherence to the protocol and key timing milestones. In the second part of the webinar we will focus on a critical analysis of the Protocol and answer questions relating to the key implications for loan markets and the likely adherents to the protocol.
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
