Search Results

Total Results: 

LIBOR Fallbacks: Good News… and Less Good News

There is good news – and less good news – on LIBOR fallback language in cash products like loans, FRNs and CLOs. On the good news front, it looks like most cash products are now including fallback language in new deals. This is critical because many instruments will be outstanding when LIBOR ends after 2021, and if they don’t have good fallback language, there could be contract frustration (and litigation). However, on the less-good-news front, the fallback language is not always consistent (which may lead to a lot of work to determine exactly how each instrument would fall back) or workable en masse (which may lead to traffic jams as everyone tries to amend their deals at the same time). We discuss the fallback status of FRNs and loans below. (And we’d gently remind readers that several CLOs have gone “hardwired”, per LCD and Covenant Review).

CLOs & LIBOR: Hardwired Fallbacks Appear

According to LCD, and illustrated in the COW, there have been at least 145 U.S. CLOs issued thus far in 2019. That represents 145 opportunities to put in stronger, more robust, more workable LIBOR fallback language into CLOs. While most 2019 CLOs used “amendment” fallback language – which might be challenging to execute en masse when LIBOR ends – we were gratified to hear that several recent CLOs included more robust hardwired fallback language. Below, we discuss why good fallbacks are critical and highlight a recent CLO that used more robust, more-ARRC-able fallback language.

LIBOR Fallbacks: Are Loans and CLOs Aligned?

There are $1.2 trillion of institutional loans outstanding, and nearly $700 billion are housed in CLOs. When the reference rate of loans and CLOs are not aligned, basis risk emerges. This was notable – and painful for equity – in 2018 when the 1-month/3-month LIBOR curve steepened to 50 bps and corporate borrowers switched to one-month LIBOR while CLO liabilities continued to reference three-month LIBOR. But basis risk doesn’t stop there; it is an issue to be considered with LIBOR fallbacks as well.

CLOs: Not So Opaque

Over the past several months, there has been considerable discussion around CLOs, their alleged opacity, their investors and their long-term stabilizing (or destabilizing) effect on financial markets. Below, we recap the debate and reveal the (not so secret) facts about CLOs.

Panel Sheds Light on Systemic Risk Issue

Last Wednesday, LSTA executive director Lee Shaiman moderated a panel at the 7th Annual LPC Middle Market Conference on whether leveraged loans and CLOs pose systemic risk to the economy, an issue that has received a lot of attention in the financial press in recent months.

Become a Member

Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.

View a list of all members.

Our Partners

cusip-global-services-vector-logo.svgFitch Group logoRefinitiv-(March-2019)SP-Global-Market-Intelligence

Search Results by Relevancy

LSTA Newsletter: August 16, 2019

This week we cover LIBOR-Good News and Less Good News; Docs Terms of Use; Delayed Comp Docs Released; Loans Mag Announcement

Loans Magazine – Summer 2019 Edition

This edition provides members with valuable content on the latest developments in the syndicated loan market. An article from David Chmiel of Global Torchlight Limited which explores “Current Geopolitical Trends Impacting the Loan Market”. We continue with a series of articles on the many aspects of the LIBOR/SOFR transition, an analysis of the secondary loan […]

LIBOR Fallbacks: Good News… and Less Good News

There is good news – and less good news – on LIBOR fallback language in cash products like loans, FRNs and CLOs. On the good news front, it looks like most cash products are now including fallback language in new deals. This is critical because many instruments will be outstanding when LIBOR ends after 2021, and if they don’t have good fallback language, there could be contract frustration (and litigation). However, on the less-good-news front, the fallback language is not always consistent (which may lead to a lot of work to determine exactly how each instrument would fall back) or workable en masse (which may lead to traffic jams as everyone tries to amend their deals at the same time). We discuss the fallback status of FRNs and loans below. (And we’d gently remind readers that several CLOs have gone “hardwired”, per LCD and Covenant Review).

Primary Delayed Compensation: Drafts Released

Yesterday, the LSTA released drafts of the LSTA trading documents to be used in connection with the new Primary Delayed Compensation Protocol. Below, please find links to the clean drafts and blacklines marking the changes to the current versions of the Par/Near Par Trade Confirmation and Standard Terms and Conditions for Par/Near Par Trades.

Primary Delayed Compensation Protocol

The Protocol applies to a “Primary Allocation” which is an allocation of new money by a syndicate desk in connection with either (i) a new issue syndication or (ii) an amendment of an existing Credit Agreement. In addition, the Protocol affects when-issued secondary trades by (i) changing what constitutes an Early Day Trade and (ii) […]

FAQs: The LSTA Trading Documents’ New Terms of Use

As we previously noted, on May 17, 2019, the LSTA published a new suite of U.S. secondary market trading documents. In conjunction with the rollout of the new documents the LSTA changed the Terms of Use applicable to counterparties who use those documents. Since then, we’ve received many questions about the new Terms of Use and below we answer many of those questions.