LIBOR Transition / Benchmark Replacement

• Overview
• ConvEx as Independent Adviser

Overview

• The cessation of GBP, CHF and Yen LIBOR occurred in December 2021, and USD LIBOR ceased to be calculated based on a panel methodology in June 2023
• There were slightly different approaches taken in the cessation of the different LIBORs: CHF LIBOR finished completely, while GBP and Yen LIBOR continued to be produced as ‘synthetic LIBORs’ for a limited time, to help outstanding instruments with limited fall-backs continue and mature over time. USD LIBOR continues to be published on a synthetic basis, and is expected to terminate completely in September 2024
• At the same time there was active encouragement of bondholder meetings to transition instrument to the new rates e.g. SONIA (GBP), SARON (CHF), SOFR (USD), SORA (SGD) and TONAR (JPY)
• For USD LIBOR, given the challenges (in particular) of successful bondholder meetings, legislation has been passed so that under US domestic law, LIBOR will be automatically substituted by CME Term SOFR. However, this does not cover USD LIBOR transactions issued under other countries’ legal systems (e.g., English law).
• The UK Financial Conduct Authority (FCA) has compelled IBA to publish synthetic USD LIBOR, but LIBOR based USD swap rates were discontinued permanently on 30 June 2023
• Since 2018, outside of the US, the fallback language for new LIBOR bond issues generally changed to include a definition of “Benchmark Events” which would trigger the process of transition to the new benchmark without requiring a bondholder meeting.  The mechanics of such transition are typically managed by an Independent Adviser
• The most recent transactions have identified the key issues (e.g. is there a matching term successor rate, what is the correct margin impact?)
• However, most current proposals require the issuer to hire an IA in the future, once the benchmark no longer exists

ConvEx as Independent Adviser

• ConvEx is experienced at managing complex provisions and applying market knowledge to determinations that affect capital markets instruments
• ConvEx has been involved with the development of the new fallback language since 2018, working with lawyers and issuers to help ensure that transition will be timely and cover the many different components
• As the new rates like SONIA, SOFR and TONAR are fundamentally different from the LIBORs they replace, there are many parts of the bond mechanics and legal documents that needed to be adjusted, hence the requirement for an Independent Adviser with experience with complex drafting, as well as LIBOR itself
• ConvEx has been appointed both up front on FRNs as Independent Adviser as well as being hired by issuers following a Benchmark Event to act as Independent Adviser
• We have experience of acting in the capacity of Agent or Advisor for FRNs, AT1s, and TLACs denominated in EUR, CHF, USD, JPY and SGD