Duane Morris Banking and Finance Law

March 14, 2023 by Duane Morris

The Fed Creates New Program to Make Sure Banks Can Fufil Depositors’ Needs

In the wake of the failures of Silicon Valley Bank and Signature Bank, on March 12, 2023, the Federal Reserve Board announced that it will make available additional funding to eligible depository institutions to help assure that banks have the ability to meet the needs of all their depositors. The new lending program, called the Bank Term Funding Program (BTFP), is effective March 13, 2023. The BTFP offers recourse loans with maturity dates of up to one year to borrowers including banks, savings associations, credit unions and other eligible depository institutions.

To read the full Alert, visit the Duane Morris LLP website.

February 16, 2023 by Duane Morris

Acceptance and Benefits of International Arbitration Rising in the Banking and Finance Industries

The banking and finance industries have historically chosen litigation as their preferred dispute resolution, generally in the New York or London courts. Due to increased globalization and participation from emerging markets (e.g., Africa and Asia), international arbitration of banking and finance disputes is rising in popularity.

To read the full text of this post by Duane Morris attorney Nicole Mirjanich Moore, please visit the Duane Morris International Arbitration Blog.

November 27, 2022 by Roger S. Chari

LIBOR Transition: Thanksgiving Surprise Consultation on Synthetic LIBOR

in case you thought it was safe to go away for Thanksgiving and not worry about LIBOR transition, think again. The Financial Conduct Authority, the regulator of US dollar LIBOR across the pond, reminded us that we are all still dependent upon them until the complete switch is made to SOFR or another rate.

On the Wednesday before Thanksgiving, the FCA issued its consultation on their consideration of a proposal to require publication of 1-, 3- and 6-month US dollar LIBOR on a synthetic basis for “a short period of time” until the end of September, 2024. Just to confirm, the consultation paper reiterates that this would only apply to legacy loans- synthetic LIBOR would not be considered representative for purposes of allowing new LIBOR loans, and it would not apply to cleared derivatives. Comments are requested by January 6, 2023. Based on prior consultations, results will likely appear later in Q1, or Q2 2023.

The consultation contains a detailed discussion of the considerations in determining whether, and to what extent, synthetic LIBOR should be allowed, and how it should be calculated. As noted in the consultation, an additional 15 month period of time to allow legacy loans to expire on their own can help ease the transition for borrowers and lenders. A potential drawback is that lenders would have to continue tracking and using LIBOR alongside SOFR or other rates until all of their loans are transitioned or expire. Even if this is not a major burden, it still makes sense to transition to replacement rates where possible. One way or another, LIBOR will eventually cease.

Duane Morris’ LIBOR Transition Team: Roger S. Chari, Chair, Joel N. Ephross, Amelia (Amy) H. Huskins, and Phuong (Michelle) Ngo.

November 7, 2022 by Duane Morris

In Recent Case, California Court of Appeal Invalidates Default Interest Provision on Nonconsumer Loan

The California Court of Appeal recently held that default interest and late fee charges are unlawful when they are assessed against the full outstanding principal balance on a partially matured note, regardless of whether the loan is a consumer or nonconsumer loan. At present, lenders operating in California should be prepared for borrowers to challenge the imposition of default interest applied against the entire unpaid principal balance in the event of a nonmaturity default.

To read the full text of this Duane Morris Alert, please visit the firm website.

August 26, 2022 by Natalie A. Stewart

The UK Recovery Loan Scheme

The British Business Bank’s (“BBB”) Coronavirus Business Interruption Loan Scheme (“CBILS”) was first introduced in April 2021. The new iteration of the Scheme, the Recovery Loan Scheme (“RLS”) launched in August 2022 and will run until 2024.

Following on from our previous article regarding the CBILS, our follow-up article provides updated guidance regarding the new iteration of the Scheme, and examines the amendments that have been made to the Scheme.

Background

The RLS is a government-backed scheme aimed at supporting access to finance for businesses in the United Kingdom, operated by the BBB on behalf of the Secretary of State for Business, Energy & Industrial Strategy. The Scheme’s accredited lenders provide support by means of either a loan, overdraft, invoice finance facility or asset finance facility[1]. The Scheme’s aim is to provide financial aid to businesses that have been affected by Covid-19. The loan can be used for any legitimate business purposes, such as managing cashflow, investment and growth. The eligibility criteria for availing of the Scheme remains the same: small and medium businesses with an annual turnover of up to £45 million. Previously, the CBILS required that the borrower must confirm that it has been negatively impacted by Covid-19.

New Developments

As an update to the previous Scheme, the Covid impact criterion is absent in the new iteration of the Scheme. In the eligibility section of the BBB’s website, it states that there is “No Covid-19 impact test required: Unlike the previous iteration of the scheme, for most borrowers, there is no requirement to confirm they have been affected by Covid-19”^[2]. It is unknown whether the absence of the requirement is in direct response to market feedback on the CBILS, however, the lack of the impact requirement is likely due to the ongoing effect that the pandemic has had on the economy, as observed through the ongoing supply chain issues and the cost of living crisis.

Previously, the Scheme supported loans of up £10 million for individual businesses and £30 million across a group, and also provided accredited lenders with a government-backed guarantee of 80 per cent on losses that may arise on facilities of up to £10 million. By contrast, the new iteration will support lending of up to £2 million for borrowers outside the scope of the Northern Ireland Protocol. Borrowers within the scope of the Northern Ireland Protocol may apply for lending of up to approximately £1 million, (subject to aid limit restrictions), and will provide the lender with a 70 per cent government-backed guarantee[3].

The BBB states that businesses that took out a previous CBILS facility before 30 June 2022 are not prevented from accessing the new iteration of the Scheme[4]. However, there is a possibility that businesses may not be eligible to receive the maximum amount.

The BBB also states that the term loans and asset finance facilities are available from three months up to six years, with overdrafts and invoice finance available from three months up to three years[5].

Lenders in the Scheme and the Application Process

When considering a prospective lender, the BBB’s website offers two filter options: ‘Filter by Financial Variant’ and ‘Filter by Region’. The current list of accredited lenders is detailed below:

The new iteration’s list of accredited lenders is short in comparison to the previous list affiliated with the RLS (but does include RBS, HSBC, Lloyds Bank and Natwest among others) and availability varies by region. However, it is likely that the list of accredited lenders will expand over time.

Under RLS, lenders are required to undertake their standard credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants[6]. Once an application has been submitted to an accredited lender, the lender will determine whether they can offer a commercial facility on better terms than the RLS facility. If they are able to offer better terms, they will do so. Otherwise, the lender, at their discretion, may elect to use the RLS to support an application. If one’s application with a lender is rejected, a borrower is not prohibited from applying to other RLS-accredited lenders.

For More Information

If you have any questions about this blog, please contact Drew D. Salvest, Natalie A. Stewart, Rebecca Green, Helen Ryan, any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you are in regular contact.

[1] https://www.ukfinance.org.uk/covid-19/business-support/recovery-loan-scheme-qa-businesses

[2] https://www.british-business-bank.co.uk/ourpartners/recovery-loan-scheme/for-businesses/

[3] https://www.british-business-bank.co.uk/ourpartners/recovery-loan-scheme/for-businesses/

[4] https://www.british-business-bank.co.uk/ourpartners/recovery-loan-scheme/

[5] https://www.british-business-bank.co.uk/ourpartners/recovery-loan-scheme/

[6] https://blogs.duanemorris.com/london/2020/03/31/new-covid-19-uk-government-financing-options-available/

May 12, 2022 by Duane Morris

CFPB Consent Order Could Upend Bank Garnishment Practices

On May 4, 2022, the Consumer Financial Protection Bureau published a consent order concerning Bank of America’s garnishment practices whereby Bank of America agreed to:

Refund at least $592,000 to its customers for garnishment fees that were improperly assessed;
Pay a civil penalty of $10 million; and
Submit a compliance plan for redressing unfair and deceptive acts in its garnishment processing.

The order has significant implications for the banking industry and the processing of garnishments. Accordingly, it would be prudent for all banks to undertake an immediate review of the following.

To read the full text of this Duane Morris Alert, please visit the firm website.

February 22, 2022 by Louise Melchor

With ESG Focus, Sustainability Linked Loans Offer Benefits to Both Borrowers and Lenders

As environmental, social, and governance (“ESG”) initiatives are increasingly implemented by borrowers and lenders, sustainability linked loans provide opportunities for both. Continue reading “With ESG Focus, Sustainability Linked Loans Offer Benefits to Both Borrowers and Lenders”

December 6, 2021 by Duane Morris

Roger Chari Pens Q&A Article on LIBOR Transition and Issues for Borrowers

Duane Morris LIBOR Transition Team leader Roger Chari recently published an article with Thompson Reuters Practical Law. He addressed several crucial questions that borrowers might have and gave some insight on navigating the options that are available as the end of LIBOR looms.

Read the article on the Duane Morris LLP website.

December 2, 2021 by Duane Morris

Best Practices for Fund Document Diligence in Fund Financing Transactions

By Anastasia N. Kaup and Melissa A. Sharp

It is critically important, for both lenders and borrowers, to confirm that the borrower is actually authorized to enter into a financing transaction, borrow money, and pledge assets as security for those obligations (if the financing is secured). If a borrower (entity) acts without express legal authority or beyond the stated scope of authority in its charter, operating agreement, or offering documents (collectively, the “Fund Documents”), the entity may be sued by its investors, the transaction may be voided by a court, the lender may suffer a loss, and/or other negative consequences may result. Continue reading “Best Practices for Fund Document Diligence in Fund Financing Transactions”

December 2, 2021 by Natalie A. Stewart

LIBOR Transition: Feedback from FCA Consultation on Synthetic LIBOR

Further to our recent blog post on synthetic LIBOR, the Financial Conduct Authority (the “FCA”) has published its feedback statement on its consultation regarding the legacy use of 1, 3 and 6 month sterling LIBOR from 1 January 2022. The feedback consisted of 36 responses from market participants, with the majority of respondents agreeing with all aspects of the FCA’s proposals. The FCA has confirmed that it will permit legacy use of synthetic Sterling LIBOR by supervised entities, aside from cleared derivatives.

The FCA confirmed that one, three and six-month synthetic Sterling LIBOR will be calculated as the sum of the applicable one, three or six-month Term SONIA Reference Rates provided by IBA and the fixed spread adjustment applicable as part of the ISDA IBOR fallback for one, three or six-month Sterling LIBOR, which is published for the purposes of the ISDA IBOR Fallbacks Supplement and Protocol. IBA will be required to continue publishing synthetic Sterling LIBOR for all applicable London business days, except London public holidays.

It is of note that some market participants queried the use of forward-looking term RFR as a component for synthetic LIBOR, suggesting the use of RFRs “in-arrears” instead in order to align with ISDA fallbacks. The FCA’s response to this suggestion was that RFRs “in-arrears” are not suitable for contracts which require the interest rate to be identified up-front, and as such contracts are not realistically able to be amended to work using RFRs “in-arrears”, the use of such rates in the calculation of synthetic LIBOR could have the potential to cause market disruption.

Duane Morris’ LIBOR Transition Team: Roger S. Chari, Chair, Joel N. Ephross, Amelia (Amy) H. Huskins, Phuong (Michelle) Ngo and Natalie A. Stewart.