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IBOR Transition Digest – December, 2 2020

Mayer Brown
02/12/2020

For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.

NEW IBOR TRANSITION TOOL

IBOR Transition Readiness Survey
Mayer Brown IBOR portal, Introduced 17 November 2020
Our latest IBOR transition resource, an IBOR transition readiness survey jointly developed and presented with Morae, helps organizations address the complex and imminent issue of IBOR transition, with follow up guidance and checklists.

THOUGHT LEADERSHIP

Expanding the Documentary Toolkit for Transition from LIBOR: The LMA’s Latest Volley of Documents for the Loan Markets
Eye on IBOR Transition Blog, 1 December 2020
LMA has published additional documents to assist with LIBOR transition, with a mix of new documents and revised versions of existing drafts.

ICE Benchmark Administration to Consult Regarding Cessation of 1-Week and 2-Month USD LIBOR by December 31, 2021, and of Other Tenors by June 30, 2023
Eye on IBOR Transition Blog, 30 November 2020
ICE Benchmark Administration announced its intention to consult in December on the cessation of two tenors of USD LIBOR after 31 December 2021, and remaining tenors of USD LIBOR after June 30, 2023.

Considerations for Transitioning Floating Rate Commercial Mortgage Loans Away from LIBOR
Eye on IBOR Transition Blog, 30 November 2020
As 2021 quickly approaches, market participants are well on their way toward addressing the IBOR transition issues specific to their product portfolios. Structured finance products present additional levels of complexity that must be tackled.

Documenting Benchmark Transition Under the German Master Agreement for Financial Derivatives Transactions
Eye on IBOR Transition Blog, 26 November 2020
The German Banking Association has published a template supplement to its Master Agreements for derivatives, securities, and repo transactions, which permits counterparties to make elections that effect a transition from EONIA to €STR. Documentation to facilitate LIBOR transition is expected in the near future.

NEWS AND DEVELOPMENTS

Plans for USD LIBOR Cessation

ICE Benchmark Administration to Consult on Its Intention to Cease the Publication of One Week and Two Month USD LIBOR Settings at End-December 2021, and the Remaining USD LIBOR Settings at End-June 2023
Intercontinental Exchange, 30 November 2020
Following on its November 18 announcement that ICE Benchmark Administration (“IBA”) would consult on its intention to cease the publication of all GBP, EUR, CHF and JPY LIBOR settings after December 31, 2021, Intercontinental Exchange announced that IBA will consult on ceasing publication of 1-week and 2-month USD LIBOR after December 31, 2021, and of all other USD LIBOR tenors after June 30, 2023. Global regulators and trade groups supported the announcement:

FCA response to IBA’s proposed consultation on intention to cease US$ LIBOR
Financial Conduct Authority (LIBOR’s regulator), 30 November 2020

Federal Reserve Board welcomes and supports release of proposal and supervisory statements that would enable clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system
Federal Reserve Board, 30 November 2020

Statement on LIBOR transition
Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, 30 November 2020

ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR
Alternative Reference Rates Committee, 30 November 2020

Statement on Developments Related to the LIBOR Transition
Securities Exchange Commission, 30 November 2020

ISDA Statement on IBA, UK FCA and Federal Reserve Board Announcements on US Dollar LIBOR Consultation
International Swaps and Derivatives Association, 30 November 2020

Structured Finance Association Supports Proposed Extension of USD LIBOR for Legacy Contracts
Structured Finance Association, 30 November 2020

United States – Syndicated and Bilateral Loans

SOFR “In Arrears” Conventions for Use in Bilateral Business Loans
Alternative Reference Rates Committee, 25 November 2020
The ARRC’s most recent voluntary conventions address both new and legacy bilateral business loans, and analyze various structural issues. The conventions also note that market participants choosing to adopt the Hedged Loan Approach to the ARRC’s recommended bilateral loan fallback language (which falls back to ISDA’s successor rate and spread adjustment) should follow ISDA’s related conventions. The bilateral loan conventions rely on the ARRC’s August 2020 technical reference appendix for syndicated loans.

FAQs for Business Loans Hardwired Fallback Language
Alternative Reference Rates Committee, 25 November 2020
Responses to frequently asked questions about the ARRC’s refreshed fallback language recommendations for both syndicated and bilateral business loans.

United States – Derivatives

Statement of Chairman Heath P. Tarbert Regarding the Transition Away from IBORs
Commodity Futures Trading Commission, November 24, 2020
The CFTC encourages market participants to adopt the ISDA IBOR Fallbacks Protocol or “risk being locked out of the interest rate swap markets.”

United Kingdom – Derivatives

Transition in Sterling Non-Linear Derivatives
The Working Group on Sterling Risk-Free Reference Rates, 26 November 2020
Providing considerations on how a non-linear derivatives market based on a risk free rate could be structured using compounded in arrears SONIA.

Europe – General

Summary Slides – Working Group Consultations on EURIBOR Fallback Trigger Events and Fallback Rates
Working Group on Euro Risk-Free Rates, 23 November 2020
Reviewing the need for EURIBOR fallback provisions, the status of EURIBOR reform, and the objectives and scope of the two recently published consultations.

Asia and Pacific Rim – General

Final Report on the Results of the Second Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks
Bank of Japan, 30 November 2020
Presenting the results of the second public consultation on fallbacks for cash products, as well as the results of deliberations by the Sub-Group on Loans on the spread adjustment methodology applicable to TIBOR as the replacement benchmark.

SORA – A Guide for Corporates and SMEs
Association of Banks in Singapore, 30 November 2020
Presenting an overview of benchmark reform in Singapore, transition considerations for derivatives, bonds, and loans, and a recommended corporate user checklist.

Global – General

Reforming Major Interest Rate Benchmarks – 2020 Progress Report
Financial Stability Board, 20 November 2020
Across all FSB jurisdictions covered by the report there is a common view that the use of more robust RFRs should be encouraged across global interest rate markets where appropriate, and that contracts referencing IBORs should have robust fallbacks. Key developments in this area during 2020 have included the adoption of €STR and SOFR as the standard discount rates for cleared derivatives in euro and US dollar markets respectively.

MAYER BROWN EVENTS

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.

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