Monthly Highlights: August 2017

Welcome to this month’s highlights from the Lexis®PSL Banking & Finance team which cover the key news updates from August 2017.

Lending

Loan Market Association provides update on issues to consider in secondary debt trading

The Loan Market Association (LMA) has updated its ‘Issues to consider when using the LMA's recommended form of secondary debt trading documentation’. The paper highlights the types of issue that the parties to a trade should consider prior to agreeing the trade, at the time of the trade and immediately after the trade. The list of items considered is not exhaustive and the LMA recommends that all parties involved in secondary loan trading take their own advice when agreeing a trade.

To view the documents, members can log into the LMA website.

LMA makes corrections to Leveraged and Super Senior Facilities Agreements

The Loan Market Association (LMA) has corrected minor errors in its Leveraged and Super Senior Facilities Agreements. The mark-ups continue to highlight changes as against the pre-18 July 2017 versions.

The revised errors include:

  1. the definition of a ‘UK non-bank lender’ has been conformed to that in the investment-grade facility agreements
  2. references to ‘company’ have been changed to ‘parent’ in the tax gross-up clause (where appropriate)
  3. references to ‘Land Registry’ and ‘Land Charges Registry’ have been conformed to changes made to the real estate finance facility agreements

To view the documents, members can log into the LMA website.

Confirmation that LIBOR will no longer be sustained after 2021

The chief executive of the Financial Conduct Authority (FCA), Andrew Bailey, has given a speech regarding the future of the London Interbank Offered Rate (LIBOR), in which he looked at its sustainability, and the transition to alternative reference rates that are to be based on the underlying transactions by 2021.

LIBOR seeks to measure the market for unsecured wholesale term lending to banks, but this market is no longer sufficiently active. So LIBOR is sustained by the use of ‘expert judgment’ by the panel banks to form many of their submissions. Mr Bailey said that the absence of active underlying markets raises a serious question about the sustainability of the LIBOR benchmarks that are based on these markets. If an active market does not exist, how can even the best benchmark measure it? Mr Bailey said that the panel banks feel understandable discomfort about providing submissions based on judgements with so little actual borrowing activity against which to validate those judgements.

Mr Bailey said that the market disruption that would be caused by an unexpected and unplanned disappearance of LIBOR should be avoided. Banks should continue to contribute to LIBOR where necessary. However, the FCA's view is that it is not only potentially unsustainable but also undesirable for market participants to rely indefinitely on reference rates that do not have active underlying markets to support them. There is a greater risk of manipulation when rates are based on judgements rather than the real price of term funding. So LIBOR will be sustained for a four or five-year period until the end of 2021. This will allow a transition period to alternative reference rates that would be based on underlying transactions.

Trade and commodity finance

Trade and commodity finance—key documentation trends

In an age old industry witnessing a rise in new players, how can lawyers and institutions ensure they stay ahead of challenges and opportunities in trade and commodity finance? Richard Usher, partner at DLA Piper, outlines the potential for closer engagement with the needs of customers, and so too the importance of making effective use of due diligence in News Analysis: Trade and commodity finance—key documentation trends.

ICC’s new forfaiting rules endorsed by the UN

The International Chamber of Commerce’s (ICC) uniform rules for forfaiting have been officially endorsed by the United Nations Commission on International Trade Law (UNCITRAL) in Vienna. The rules (URF800) are the first global rules for forfaiting, a trade financing technique. ICC secretary general John Danilovish says ‘harmonised global rules have a vital role to play in facilitating finance for small businesses looking to trade internationally’. For more information, see the ICC press release.

Debt Capital Markets

IOSCO consults on reporting requirements in secondary corporate bonds markets

The International Organization of Securities Commissions (IOSCO) is consulting on regulatory reporting, public transparency and comparison of data across jurisdictions in secondary corporate bond markets. The consultation report makes a number of recommendations that emphasise the importance of ensuring the availability of corporate bond information, both to regulators in the form of reporting and to the public in the form of transparency requirements. Responses are sought by 16 October 2017.

Key trends in debt capital markets in the first half of 2017

The Banking & Finance team has been speaking with Chris Horte, consultant, and Mindy Hauman, professional support counsel, at White & Case LLP in News Analysis: Key trends in debt capital markets in the first half of 2017, who have considered the key topics and documentation trends in debt capital markets in the first half of 2017, including green bonds, the Market Abuse Regulation, the new Prospectus Regulation and US risk retention rules for asset-backed securities.

Derivatives

Variation margin requirements deadline looms

The Banking & Finance team has been speaking with Dr Sharon Brown-Hruska, PRIME Finance Expert and former Chairman and Commissioner, Commodity Futures Trading Commission (CFTC)  in News Analysis: Variation margin requirements deadline looms where we discuss the implementation of margin requirements on 1 September 2017 and how the market has been preparing itself for this.

FIA collects documents to assist member firms implementing MiFID II

The Futures Industry Association (FIA) principal traders group is collecting external resources for member firms working to implement MiFID II.

The documents include:

  1. ICE MiFID II / MiFIR Implementation Update
  2. ICE Identifier Admin User Guide
  3. LME Resources for Non-EU Firms
  4. Euronext: MiFID II Transaction Reporting for non-MiFID Euronext Members

ISDA publishes white paper: Brexit–central counterparty (CCP) location and legal uncertainty

The International Swaps and Derivatives Association (ISDA) has published the first in a series of white papers: Brexit–central counterparty (CCP) location and legal uncertainty—setting out their position on Brexit and the potential impact on the derivatives market. ISDA believes an EU CCP location policy would increase costs for market participants and create a more fragmented and less secure clearing house landscape. ISDA has also urged UK and EU policy-makers to remove any legal uncertainty over cross-border English law contracts by designing transitional arrangements to be put in place after the UK leaves the EU until a proper system of mutual recognition is introduced.

ISDA sets out objections to moratoria power amendments

ISDA has issued a position paper objecting to the European Commission’s proposed amendments to the Bank Recovery and Resolution Directive 2014/59/EU(BRRD). The Commission’s proposals are intended to harmonise the use of moratoria powers by resolution authorities in the EU, but the ISDA says they would put European financial institutions at a severe competitive disadvantage globally, pose significant challenges to financial stability, and introduce new levels of uncertainty into the recovery and resolution process.

ISDA launches 2017 OTC equity derivatives T+2 settlement cycle protocol

ISDA has issued the 2017 over-the-counter (OTC) equity derivatives T+2 settlement cycle protocol which is designed to assist market participants in amending the terms of certain trading confirmations to address the change for certain equity derivative transactions from a T+3 to a T+2 settlement cycle. The transition to a two-day settlement cycle is scheduled to take place on 5 September 2017.

Restructuring

One of the first Recast Regulation cases (Advalorem Value Asset Fund Ltd v Gregory King)

In News Analysis: One of the first Recast Regulation cases (Advalorem Value Asset Fund Ltd v Gregory King), the R&I team look at one of the first cases in the EU considering the provisions of the Recast Regulation on Insolvency 2015/848. The Supreme Court of Gibraltar considered the provisions regarding the centre of main interests (COMI) of a bankrupt individual.

Re LB Holdings Intermediate 2 Ltd (in administration) [2017] EWHC 2032 (Ch)

The joint administrators of four English companies within the former Lehman Brothers group had their applications for directions granted in respect of a proposed settlement of numerous substantial inter-company claims including those claims at issue in the proceedings known as ‘Waterfall III’.

The judgment contains a clear direction on the extent to which the courts will bless a transaction in an insolvency context, according to Euan Clarke, a partner in Linklaters’ dispute resolution group in London in News Analysis: ‘Clear direction’ in LB Holdings judgment (LB Holdings Intermediate 2 Ltd (in administration)). It also provides guidance on when it would be appropriate for insolvency practitioners to seek directions from the court with respect to a transaction.

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