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Clifford Chance

Clifford Chance

IBORs and benchmark reform

Exploring the impact of transitioning from LIBOR and other IBORS

The transition from LIBOR and other IBORs could be the most significant change to financial markets in recent years.

Against a backdrop of regulatory encouragement, participants in the financial markets have been planning and working towards transition away from LIBOR towards alternative risk free rates.

Our experts can help you to understand what this will mean for your transactions and prepare for the future.

LIBOR Transition - changes to the UK and EU OTC derivatives clearing and trading obligations

The UK and the EU are making different changes to the scope of their respective OTC derivatives clearing and trading obligations to reflect the planned transition from LIBOR to risk-free rates. This briefing summarises and compares the changes made by the Bank of England and the FCA to the UK clearing and trading obligations and those proposed to be made by ESMA to the EU clearing and trading obligations. Read more about LIBOR Transition - changes to the UK and EU OTC derivatives clearing and trading obligations.

Synthetic LIBOR and the UK Critical Benchmarks (References and Administrators' Liability) Act 2021: 10 things that you need to know

With a matter of weeks to go, the UK legislation to address contract continuity for contracts relying on synthetic LIBOR after 31 December has now received Royal Assent. This quick overview might help your assessment of the Critical Benchmarks (References and Administrators' Liability) Act 2021 – especially given that the UK legislative approach (with its reliance on continued use of a forward-looking rate, albeit on a modified and temporary basis) differs from the statutory replacement approach adopted by the EU and the United States. Read more about Synthetic LIBOR and the UK Critical Benchmarks (References and Administrators' Liability) Act 2021: 10 things that you need to know.

ISDA IBOR Benchmark Fallbacks Supplement and Protocol: key considerations

ISDA's IBOR Fallbacks Supplement and Protocol have been finalised and will be released on 23 October 2020. The Supplement, when it becomes effective on 25 January 2021, will implement risk-free rate fallbacks into the terms of new transactions and the Protocol will enable adhering parties to implement these fallbacks into the terms of legacy transactions. Read more about ISDA's IBOR Fallbacks Supplement and Protocol.

Contractual continuity for "tough legacy" contracts

With time ticking until the end of 2021 when at least certain settings of LIBOR will cease, the UK authorities are finalising their plans for “tough” legacy through the means of legislation and powers granted to the FCA. In this article in Butterworths Journal of International Banking and Financial Law (JIBFL), we examine such legislation and powers with a comparative eye to alternative solutions in the US and the EU. Read more about contractual continuity for "tough legacy" contracts.

Synthetic LIBOR and UK Contractual Continuity: Critical Benchmarks (References and Administrators' Liability) Bill

Most non-USD LIBOR tenors and currencies will cease altogether on 31 December 2021. A few Sterling and Yen tenors are likely to continue in a modified form (“synthetic LIBOR”) for a limited period, pursuant to powers given to the UK FCA. Such synthetic LIBOR would replace LIBOR, with the intention that it would be available for use in a limited range of "tough legacy" contracts. Those eligible contracts are yet to be specified by the UK FCA.

Legislation giving the UK FCA powers to declare a critical benchmark as unrepresentative and to demand modification of methodologies - as well as to determine which contracts or arrangements might use the modified rate - are already in place. This was done via amendments to the UK Benchmarks Regulation made by the UK Financial Services Act 2021. A missing element was UK legislation to address contract continuity, where parties to an eligible contract use synthetic LIBOR, rather than the LIBOR rate specified in the contract. This is being addressed in a new Bill introduced into the House of Lords on 8 September 2021: the Critical Benchmarks (References and Administrators' Liability) Bill. Read more about Synthetic LIBOR and UK Contractual Continuity: Critical Benchmarks (References and Administrators' Liability) Bill.

New York Governor signs legislation to address cessation of USD LIBOR

On April 7, 2021, New York Governor Cuomo signed into law Senate Bill 297B/Assembly Bill 164B, available here, to mitigate risks and provide continuity for certain financial products at the time that U.S. dollar ("USD") LIBOR is no longer published or is determined to not be representative. Read more about the New York Governor signing legislation to address cessation of USD LIBOR.

FCA announcement on the end of LIBOR and implications for loan documentation

In light of the FCA's announcement (the "Announcement") on the future cessation and loss of representativeness of the LIBOR benchmarks, you may be wondering what this means for loan transactions. In this briefing we examine the formal confirmation of the end of LIBOR and the documentary implications for English law loan transactions. Read more about the FCA announcement on the end of LIBOR and implications for loan documentation.

UK FCA announcement on cessation and loss of representativeness of LIBOR benchmarks: What next for Derivatives?

On 5 March 2021 the UK Financial Conduct Authority (the "FCA") published an announcement on the future cessation and loss of representativeness of LIBOR benchmarks (the "FCA LIBOR Announcement"). This announcement constitutes an "Index Cessation Event" for the purposes of the ISDA IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol. The publication of this announcement also triggers the fixing of the spread adjustment for each LIBOR setting under the terms of the Bloomberg IBOR Fallbacks Rate Adjustment Rulebook. The market now has a clear timetable for the cessation of LIBOR benchmarks and, for derivatives transactions that include an index cessation event trigger, confirmation of the dates from which the adjusted risk-free rate fallbacks for transactions referencing these LIBOR rates will apply as well as the quantum of the spread adjustment to be applied to these adjusted fallback rates. Read more about the UK FCA announcement on cessation and loss of representativeness of LIBOR benchmarks: What next for Derivatives?

LIBOR Transition and Aircraft lease Financings

This is the third in our series of briefings examining the implications of LIBOR cessation for aviation transactions. Since summer 2020 and in the midst of the ongoing Coronavirus pandemic, there has been considerable and laudable progress by regulators, national working groups and institutions on LIBOR transition and broader global benchmark reform. The ARRC's recommendation that USD LIBOR is replaced by SOFR brings some welcome clarity for the industry, given that most cross-border aircraft transactions are USD denominated. However, remaining uncertainties and divergence between products and markets mean that the work to ensure a smooth and balanced transition for commercial parties is only just beginning.

This briefing summarises aspects which we consider crucial for industry participants to address in their internal planning, documentary due diligence and negotiations with counterparties. Read more about LIBOR Transition and Aircraft lease Financings.

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