[4] Considerations for dealers in this staff document are limited to securities recommendations and investment strategies with securities. Investment advisor considerations are intended to cover the entire advisory relationship, which can extend to both portfolio and non-transferable investments. The term “investments” as used in this statement is intended to include, but is not limited to, securities. For more general information on LIBOR, see the July 2019 Staff Statement. See also ICE, LIBOR website, available at www.theice.com/iba/libor. Female: To find, hire and retain the best lawyers, it`s important to have a solid hiring strategy. Robert Half Legal works with law firms and legal departments to create effective workforce plans that can adapt to changing workloads, realize significant cost savings, and improve overall human resource management. We offer a wide range of resources to support hiring managers and candidates, including our annual salary guide, cutting-edge workplace research and valuable interactive tools. For more information, call us at 1-800-870-8367 or visit roberthalflegal.com.
[13] For example, a security`s transaction documents may indicate that if LIBOR is not published, the security will use the most recently published LIBOR. The main consequence of permanently abolishing LIBOR could then be to convert a variable-rate security into a fixed-rate security. This is an example of what banking regulators have called insufficient fallback language. See Joint Statement on Managing the LIBOR Transition, Federal Institutions Financial Institutions Examination Council (July 1, 2020), available at www.ffiec.gov/press/PDF/FFIEC%20Statement%20on%20Managing%20the%20LIBOR%20Transition.pdf (indicating that insufficient fallback language could pose legal, security, and soundness risks). The fallback language consists of three key elements: fallback triggering event, reference substitution, and reference point replacement adjustment. In addition to fallback language, companies should consider other important contractual characteristics that may affect the IBOR transition, including due date, the company`s role in the contract, reference use, consent amendment and provision, applicable law and jurisdiction, and force majeure provisions. IMF staff encourages entities to provide qualitative and, where material, quantitative information, such as the notional value of LIBOR contracts that extend beyond December 31, 2021 or June 30, 2023, to provide context for the state of the entity`s transition efforts and the risks involved. For example, entities with a significant risk related to the stock of debt with inadequate fallback provisions should consider disclosing the amount of debt after the respective termination date and the measures taken by the entity to remedy the situation, such as renegotiating contracts or refinancing commitments. To the extent that an entity has taken or is taking steps to identify and assess exposure to LIBOR and mitigate material risks or potential impacts of the transition, the entity should consider providing investors with an overview of the entity`s actions, remaining steps, and timing of future efforts. Banking supervisors have provided guidance to their supervised entities encouraging these banks to “stop entering into new contracts using USD LIBOR as a benchmark rate as soon as possible and in any event by 31 December 2021”. [56] Entities subject to such prudential guidelines should consider providing detailed information on their transition efforts and the impact of those efforts on the entity, if any.
[9] The ARRC is composed of a large number of private sector entities, each with a significant presence in markets affected by USD LIBOR, and a large number of public sector entities, including banking and financial sector supervisors, as ex officio members. See www.newyorkfed.org/arrc/about. Market participants should also keep in mind that most major monetary jurisdictions have identified the need to reform key benchmark interest rates. In other currencies for which LIBOR is listed, public and private sector working groups have been formed, similar to ARRC. For example, the Working Group on Sterling Risk-Free Reference Rates has chosen the overnight index average in sterling (“SONIA”) as the UK`s preferred alternative benchmark. SONIA is the effective overnight interest rate that banks pay for unsecured transactions in pounds sterling. See Working Party on Sterling Risk-Free Reference Rates, available at www.bankofengland.co.uk/markets/ transition to sterling risk-free rates from Libor/sterling Sterling Risk-Free Reference Rate. In addition, this opinion briefly addresses the following additional issues that market participants should consider in the context of the transition to LIBOR: the information requirements applicable in relation to the discontinuation of LIBOR; the likely impact of the transition to LIBOR on valuations using LIBOR as an input, including valuations determined by investment firms; and the operational complexities that the transition to LIBOR is likely to bring, which may require significant changes to the IT system. To generalize this point, any person involved in LIBOR transactions should assess whether they are exposed to misrepresentation or injunction allegations, or whether they themselves have claims arising from allegations of misrepresentation or injunctive relief.
For example, a listed company that holds a significant amount of LIBOR investments should consider not only the accounting, tax, financial, legal or other risks of the transition to LIBOR, but also whether those risks have all been adequately disclosed. As noted above, valuations that use LIBOR as an input, including those made by investment firms, are likely to be affected in various ways by switching to another benchmark. Advisors, funds and fund administrators should be aware of all risks and implications associated with the valuation of inputs and assumptions related to LIBOR and transition. There are many situations, from simple to complex, where the interruption of LIBOR could raise sensitive legal questions about the applicability of “legacy” contracts. Here are a few examples. In practice, the contracts of some people involved in such scenarios will fall under legal solutions such as those discussed above. However, it is always important to understand the underlying problems that these laws are trying to address, both to analyze whether delaying these solutions is in the interest of each party and to identify problems with treaties that end up falling through the cracks of various legislative efforts. Quinn Emanuel can help you (i) identify LIBOR-related transactions, (ii) examine the practical and legal implications of the transition for those transactions, (iii) advise you on the current status of legislative solutions in different jurisdictions and how they apply to a particular situation, (iv) encourage your counterparties to: Find solutions to avoid or improve negative effects, and also (v) get the best solution for you in negotiations with your counterparties and in the courtroom. There is no alternative: legal teams and business consultants must review each financial arrangement in their contract portfolios and identify all Libor references. Because contracts are often spread across a company, not only can they be hard to find, but performing the analysis to calculate the actual risk is likely to be a major challenge.