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LIBOR: Update on industry initiatives and proposed legislation

Date:
October 12, 2020

Summary

LIBOR transition continues with the announcement of ISDA’s protocol release date, updated language from the ARRC for bilateral business loans, and possible amendments to the EU Benchmarks Regulation to help ease the transition.

The International Swaps and Derivatives Association (ISDA) has announced that it will publish the 2020 IBOR Fallbacks Protocol and amended definitions on October 23, 2020. The Protocol and amended definitions will become effective on January 25, 2021. This announcement closely follows on the heels of a recent announcement by the U.S. Department of Justice granting a favorable business review letter, concluding that “ISDA’s proposed amendments to its standardized documentation are unlikely to harm competition.” The IBOR Fallbacks Protocol will be one option available to market participants seeking to amend multiple legacy derivatives through a single adherence process.

For loans in the U.S., on August 27, 2020, the ARRC released updated model language for bilateral business loans. This follows the updated model language for syndicated loans that the ARRC released on June 30, 2020. With these updated model language examples, the ARRC is hoping to encourage market participants to move towards a “hardwired approach” to the LIBOR transition — using fixed, clearly defined fallback provisions rather than the more time-consuming and flexible amendment approaches. The new ARRC proposed model language also makes notable changes to what rates will apply when LIBOR is unavailable (the fallback waterfall).

Meanwhile, European legislators are discussing making targeted amendments to the 2016 EU Benchmarks Regulation to help facilitate the transition away from LIBOR. The text of an initial proposed draft amendment was released on July 24, 2020. The final form remains uncertain at this time, while negotiations are ongoing on the scope of regulator powers to replace LIBOR in European financial contracts that lack suitable fallback provisions.


Speak to a Chatham expert

Please reach out to the Chatham team if you have questions around the LIBOR transition and its effect on your loans and derivatives documentation.

About the author

  • Christopher Bender

    Director
    Regulatory Advisory

    Private Equity | Kennett Square, PA

    Chris is a Director of Regulatory Advisory where he serves Chatham’s private equity, infrastructure, and real estate clients. He brings significant experience advising on global derivatives regulatory regimes and compliance with derivatives regulation.

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