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The U.S. chapter of FFA Next Gen held its second virtual panel session this week, titled “Into the Unknown”: A Fund Finance Perspective on “Letting LIBOR Go.” Over 215 attendees heard from expert panelists Jean MacInnes, Executive Director and Counsel at Mizuho Americas, Jeff Nagle, Partner at Cadwalader, and Tess Virmani, Associate General Counsel and Executive Vice President for Public Policy at LSTA. I appreciated the opportunity to serve as panel moderator. Read on for some key takeaways.
Next Wednesday, September 30, 2020, marks the ARRC’s recommended transition date to a “hardwired” approach for LIBOR successor provisions in U.S. dollar-denominated syndicated credit facilities. It also represents the 15-month deadline before LIBOR is to be completely phased out. On the cusp of these pivotal horizons, we assess what you need to know from a fund finance perspective for the next chapter of the LIBOR transition.
Given the general economic uncertainty in today’s world and the recent market turmoil, we have seen private equity funds jostling to preserve and ensure future liquidity, albeit at a higher price than before. Similarly, in this volatile economic environment, parties to business transactions increasingly want more certainty that they will be paid. Letters of Credit (“LCs”), which are often included in revolving subscription credit facilities, provide borrowers with the ability to guarantee contracts with third parties, providing certainty to the beneficiary that they will be made whole. In light of the above, we thought it would be helpful to set out an introduction of LCs themselves, including what they are and how they fit into revolving subscription credit facilities.
The Fund Finance Association hosted a market update webinar on Wednesday with approximately 800 attendees. Led by Nick Mitra of Natixis and organized by Nick and Terry Hatton of MUFG, the webinar included a series of one-minute market updates from industry professionals across the globe and a fund formation data presentation from Dave Lowery at Preqin. Additionally, Jeff Johnston of Wells Fargo gave the closing remarks, which included the announcement of the FFA’s 2020 London and Asia conferences converting to virtual and being scheduled for the week of November 16th (specifics forthcoming).
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In this week’s FFF: Industry Conversations, Jeff Nagle, a Cadwalader partner and member of our LIBOR Preparedness Team, teaches a SOFR 101 session. He covers all the high-level things you need to know, including how SOFR is actually calculated, how it differs from LIBOR, what its variations are and which are best, how margins will be impacted, what the expected market conventions are, and what comparable rates exist for non-dollar denominated loans. With the LIBOR phase-out date approaching, the session teaches the basics you need to know to be prepared for moving to SOFR benchmark rates. Additionally, Mack McDonald, CEO of Renaissance West Community Initiative, provides an update on the great work the non-profit is doing to tackle generational poverty with a holistic approach.
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Walkers this week published a thought leadership piece on Alternative Lenders in Fund Finance. The article focuses on the rise of non-bank lenders on the NAV side of the market and highlights their ability to create flexible, bespoke financing solutions, albeit at higher funding costs.
State Street Bank is hiring for multiple Account Officer roles in its Global Credit Finance group, which includes its fund finance business. The senior roles are client-facing with flexibility as to location.
Much of the thought in the LIBOR phase-out process has been on drafting contract terms that identify an agreed-upon replacement benchmark and then effecting the transition. One aspect that has received less attention is the necessary margin adjustment that should accompany a change in the benchmark.
Cadwalader is advising the Loan Syndications and Trading Association (“LSTA”) as external counsel in connection with drafting its new Form of Credit Agreement – Investment Grade Term Loan (“IG Term Loan”).
Here's a look at what we're reading outside the four corners of fund finance.