Duane Morris Banking and Finance Law

August 10, 2020 by Phuong (Michelle) Ngo

For LIBOR Transition Procrastinators, SOFR Starter Kit to the Rescue!

LIBOR is going away. It was a distant pronouncement in 2017, and many thought it wouldn’t happen, or would get delayed. But it’s coming. Soon. December 31, 2021 may still seem a long way off, but there’s a lot to do between now and then. Market participants may be forgiven for concentrating on the global pandemic the last few months, but regulators in many arenas have stepped up their efforts in the past month to get the word out on LIBOR transition and get everyone moving forward on the right track.

Following its Summer Series on LIBOR transition, on August 7, 2020, the Alternative Reference Rates Committee of the New York Fed published the SOFR Starter Kit, a set of factsheets to inform the public about the transition away from USD LIBOR to SOFR. The SOFR Starter Kit is intended to ensure market readiness for the transition and help participants in markets using USD LIBOR to quickly familiarize themselves with the background information of, and main issues related to, the transition. The SOFR Starter Kit has three parts:

Part I (History and Background) summarizes the background on USD LIBOR, the history of the ARRC, and its selection of SOFR.
Part II (Key Facts about SOFR) explains how SOFR works, facts by numbers about SOFR, as well as common questions and misconceptions about the SOFR.
Part III (SOFR Next Steps) lays out numerous tools that the ARRC has made available to facilitate a smooth transition from USD LIBOR to SOFR, including a set of best practices, the User’s Guide to SOFR along with several ARRC-recommended conventions, the recommended fallback language for voluntary use in USD LIBOR-linked contracts, and other helpful tools from the ARRC.

Continue reading “For LIBOR Transition Procrastinators, SOFR Starter Kit to the Rescue!”

August 6, 2020August 7, 2020 by Phuong (Michelle) Ngo

Hardwired for a Smoother LIBOR Transition?

The London Interbank Offered Rate (LIBOR), which has served as a reference rate for approximately $350 trillion of debt and derivatives, will be phased out after December 31, 2021. In the United States, the Alternative Reference Rates Committee (ARRC), convened by the Federal Reserve Board and the New York Fed, has been tasked with ensuring a successful transition from USD LIBOR to a more robust reference rate. In June 2017, the ARRC identified the Secured Overnight Financing Rate (SOFR) as its recommended alternative to USD LIBOR. In April 2019, the ARRC first published recommended fallback language for syndicated business loans. At the time, the recommendations provided two approaches: an “amendment approach”―which delays all decisions about the successor rate and adjustment until a future date―and a “hardwired approach”―which hardwires the priority of replacement rates to be selected into the credit agreement upon origination based on what replacement rates are available at the time of replacement and provides for an easier amendment of related terms.

The syndicated lending market has largely adopted the amendment approach so far. In June 2020, however, the ARRC released refreshed recommendations regarding fallback language for U.S. dollar-denominated syndicated business loans that reference LIBOR. Unlike the April 2019 recommendations, the June 2020 recommendations provide only for hardwired fallback provisions. Read on to see how our Alert, published today, can help you discern the differences between the hardwired approach and the amendment approach and determine which works best for you.

Continue reading “Hardwired for a Smoother LIBOR Transition?”

July 24, 2020May 5, 2021 by Roger S. Chari

ARRC Pumps Up the Summer Heat on LIBOR Transition

While the COVID-19 pandemic has taken center stage the past few months, the transition away from LIBOR has been continuing in the background, almost unnoticed at times. Some market participants have questioned whether the disruption caused by COVID-19 will delay the LIBOR transition process. The proposed timelines have stretched a bit, but regulatory authorities have been adamant that the December 31, 2021 deadline remains firm.

Earlier this month, the Alternative Reference Rates Committee of the New York Federal Reserve (ARRC) began a full court press to make the case for transitioning to SOFR and guide market participants to that goal. Tom Wipf, the chair of the ARRC, spoke at webinars hosted by the Loan Syndications & Trading Association (LSTA) and the International Swaps and Derivatives Association (ISDA). The ARRC also kicked off a SOFR Summer Series of webinars open to the public. The speakers include many top officials and industry leaders, and their insight is invaluable. There are also lively questions and answers from the moderator and the internet audience.

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July 22, 2020May 5, 2021 by Joel N. Ephross, P.C.

The Transition Away from LIBOR Gains Traction

The transition from U.S. dollar (USD) LIBOR to a more robust reference rate is a necessity. The UK’s Financial Conduct Authority (FCA) is responsible for regulating LIBOR, and FCA Chief Executive Andrew Bailey has made clear that the publication of LIBOR is not guaranteed beyond 2021, so time is of the essence. Continue reading “The Transition Away from LIBOR Gains Traction”

June 11, 2020 by Duane Morris

Expansion of Main Street Lending Program by Federal Reserve

On June 8, 2020, the Federal Reserve made significant additional changes to the terms of the Main Street Lending Program, aimed at making the program more attractive to small- and mid-sized businesses and to lenders. Changes include decreased minimum loan amounts, increased maximum loan sizes, extended loan terms and deferred principal repayments, among others.

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

June 3, 2020June 10, 2020 by Duane Morris

Federal Reserve Updates Main Street Lending Program Guidance and Publishes Form Loan Documents

The Federal Reserve Board issued initial guidance regarding its Main Street Lending Program, as authorized under the Coronavirus Economic Stabilization Act (Title IV of the CARES Act), on April 9, 2020, which was modified and supplemented by the frequently asked questions (FAQs) published on April 30, 2020. On May 27, 2020, the Federal Reserve Bank of Boston, which the Federal Reserve System tasked with administering the Main Street Lending Program, released a further updated set of FAQs and published form documentation to assist with the documentation of each loan participation. The new guidance both modified and supplemented the previous guidance issued on the three facilities―the Main Street New Loan Facility, the Main Street Expanded Loan Facility and the Main Street Priority Loan Facility.

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

June 2, 2020June 10, 2020 by Duane Morris

Federal Court Rules That Loans Are Not Securities

On May 22, 2020, the U.S. District Court for the Southern District of New York ruled in Kirschner v. J.P. Morgan. The court held that a syndicated term loan is not a “security” under state securities laws. Had the court found that loans are securities, such a ruling would have had profound consequences on the leveraged loan market.

To read the full text of this Duane Morris Alert, which provides a brief overview of the court’s holding and details the implications on the banking and financial services industry, please visit the firm website.

May 27, 2020June 10, 2020 by Duane Morris

SBA Releases Interim Final Rule Regarding PPP – Lenders’ Perspective

On May 22, 2020, the United States Department of the Treasury and the U.S. Small Business Administration (SBA) released new guidance concerning the federal government’s Paycheck Protection Program (PPP) implemented under the CARES Act. The interim final rule sets forth responsibilities for both borrowers and lenders with respect to loan forgiveness review procedures and other matters. The interim final rule applies to all loans under the PPP, and, importantly, states that audits may be exercised in the SBA’s sole discretion, regardless of loan amount.

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

May 27, 2020June 11, 2020 by Roger S. Chari

Remote Notarization as States Reopen

As states reopen in stages, we thought it would be a good time to update our 50-state chart on remote notarization.

In our original Alert, we noted that at the start of the shutdowns, some states already had remote notarization procedures in place; some states that didn’t have procedures quickly adopted stopgap measures to facilitate transactions during the crisis and others failed to address the issue. As the pandemic progressed, many of these states ultimately adopted emergency statutes and orders, and others still did not take action.

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May 19, 2020June 10, 2020 by Duane Morris

New Guidance Documents on Green Loan Principles and Sustainability Linked Loan Principles for a Post-COVID-19 World

While the world is currently focused on the impact of COVID-19 on the global economy, with “COVID-19 Bond” issuance easily outdistancing the current volume of green financing, it is time to consider post-COVID-19 activities. One positive effect of the pandemic is the demonstrable improvement of carbon levels and other environmental measures. So, as national governments consider measures to reopen their economies, lenders and borrowers may want to consider how best to finance the economies’ reemergence. Many hope to see an expansion in areas that stimulate growth in a more environmentally friendly manner.

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