Sector developments and company hires

Libor announcements to ‘accelerate’ transition
The UK FCA has confirmed that all Libor settings will either cease to be provided by any administrator or no longer be representative immediately after 31 December 2021 - in the case of all sterling, euro, Swiss franc and Japanese yen settings, as well as the one-week and two-month US dollar settings – and immediately after 30 June 2023, in the case of the remaining US dollar settings. Based on undertakings received from the panel banks, the FCA does not expect that any Libor settings will become unrepresentative before these dates, with publication of most of the Libor settings ceasing immediately after these dates.

The FCA says that regulated firms should expect further engagement from their supervisors to ensure these timelines are met.

ISDA has confirmed separately that the spread adjustments to be used in its IBOR fallbacks will be fixed as a result of this announcement, thereby providing clarity on the future terms of the derivative contracts that now incorporate these fallbacks. Meanwhile, the FCA is taking steps to help reduce disruption in legacy cases. 

Finally, the authority will consult in Q2 on using proposed new powers under the Benchmarks Regulation (BMR) to require continued publication on a ‘synthetic’ basis for some sterling Libor settings and, for one additional year, some Japanese yen Libor settings. It will also consider the case for using these powers for some US dollar Libor settings.

Moody’s suggests that the announcements by the FCA and ISDA will likely cause an acceleration in securitisations moving away from Libor, in part caused by the activation of certain contractual ‘pre-cessation’ triggers. Without transition, the rating agency estimates that US$700bn of global structured finance debt it rates would still reference Libor at end-2021.

In other news…

Benchmark switch for RMBS duo
Dentons has advised two UK banks in relation to switching their RMBS to SONIA from Libor. Principality Building Society completed a consent solicitation process, where the issuer - Friary No 4 - invited class A noteholders to consent to the modification of the terms and conditions of the notes and related amendments to the transaction documents, such that the existing three-month Libor benchmark used to calculate the rates payable was replaced by compounded daily SONIA. Noteholder consent was successfully achieved at the initial noteholder meeting, with related amendments to the class B notes made by way of a noteholder written resolution.

Meanwhile, Atom Bank completed a negative consent process in relation to the Elvet Mortgages 2018-1 class A and class Z notes. The transaction was undertaken in accordance with the AFME recommended base rate modification provisions set out in the terms and conditions of the notes and enabled the issuer to successfully transition the benchmark for the notes from Libor to SONIA and to amend the terms of the relevant transaction documents accordingly. In line with the AFME provisions, Atom Bank was able to proceed without express noteholder consent on the basis that sufficient notice was provided to noteholders of the intention to transition the notes from and that less than 10% of noteholders objected to the proposed amendments.

EMEA
HIG Capital has expanded its European WhiteHorse team with the hire of Michael Lucas as an md, based in London. He joins HIG Capital from Bridgepoint Credit, where he was a founding partner and head of the UK operation.

Securitisation reporting instructions updated
ESMA has published four new Q&As and modified 11 existing Q&As in connection with its securitisation reporting instructions. The authority also updated its XML schema for the templates set out in the technical standards on disclosure requirements.

The new Q&As include instructions on how to report split and merged underlying exposures. The updated Q&As include revised instructions on how to report income fields for buy-to-let residential mortgages.

Meanwhile, the revised reporting instructions address technical issues identified by stakeholders since August 2020. To facilitate the smooth implementation of the updated rules, ESMA says reporting entities may choose to use version 1.2.0 or version 1.3.0 of the XML schema and of the validation rules until 1 September 2021. As of that date, reporting entities may only use the latest version.

The updated XML schema concern the two standard reports that a registered securitisation repository (SR) must provide: the end-of-day report, which contains summary information about all securitisations reported to an SR and must be made available on a daily basis; and the rejection report, which contains information about data submissions that were rejected by an SR because they failed to meet one or more requirements. The rejection report must be made available by SRs on a weekly basis.