October 27, 2020 - On Monday, October 26th, the LSTA hosted a “LIBOR Remediation” call with a number of buyside members. Below, we i) review what, exactly, is LIBOR remediation, ii) discuss some steps for successfully remediating a LIBOR-based loan portfolio and iii) provide a link to a short LSTA presentation that walks through remediation ideas.
Folks may have noticed that, in June, the SEC announced that it would begin examining investment advisors’ plans for LIBOR cessation and remediation. The SEC provided a helpful list of 20(!) questions that examiners might ask in exams. And, indeed, a number of LSTA buyside members have been contacted for such an exam.
The SEC wishes to know how investment managers will assess LIBOR exposure and cessation risk in their portfolios and how they will manage the risk. Enter remediation plans. A LIBOR remediation plan helps a manager to determine i) LIBOR exposure in its loan portfolio, ii) LIBOR fallback language in each loan, iii) actions a manager can take around LIBOR fallbacks, and iv) what action the manager plans to take with each loan when a fallback is triggered.
The LSTA is working with members to help them develop remediation plans. To that end, we’ve identified three main types of LIBOR fallbacks for loans (“none”, “amendment fallback” and “hardwired fallback”) as well as potential fields for remediation in these fallbacks (which include things such as all variants of fallback triggers, hardwired waterfalls (for hardwired fallbacks), amendment processes and votes (for amendment fallback), as well as a variety of idiosyncratic fallback language). The LSTA also is holding a “LIBOR Remediation Series” with buyside members and vendors that are providing remediation services and products.
To make all of this easier – or, perhaps, less hard – a remediation zoomcast and slide deck are available for LSTA members here.