Breakage Costs & SOFR Loans: Breaking-up is Still Expensive

It may not be the next Taylor Swift song, but a prepayment changes the Lender-Borrower relationship. In a swap, we all know there are consequences. Rather than a “breakage cost”, the swap market just calls it an early termination payment. In loans, traditionally, there was less time/energy spent to negotiate the provisions requiring the borrower to indemnify a lender for breakage costs. Today, however, it is a hot topic. Specifically, in the context of SOFR-loan prepayments where the concept of “Breakage Costs” is a nebulous/unclear concept, leaving some market ...

CFPB Announces LIBOR Transition’s Final Rule, Amending Provisions of Regulation Z

On December 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) published its final rule (“Rule”) facilitating the transition away from LIBOR for open-end and closed-end consumer financial products. The Rule amends provisions of Regulation Z, which implements the Truth in Lending Act to allow for the transition from U.S. dollar LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other alternative reference rates. SOFR is deemed compliant as a replacement index whereas other alternative reference rates must pass the “comparability” or ...

Can New US Law Help Increase Financial Recovery and Reintegration of Survivors of Human Trafficking?

The following was co-authored by Moore & Van Allen Financial Regulatory Advice & Response Senior Counsel Sarah Byrne; Dr Leona Vaughn, Vulnerable Populations Lead for FAST at UN University Centre for Policy Research; and Professor Barry Koch, former Commissioner of the Liechtenstein Initiative and co-founder of the SII, and was published by the United Nations University Centre for Policy Research on January 27, 2022.

The damaging impact of the trafficking experience on survivors is multifold. The harm is physical, psychological, as well as financial, and long-term. The global ...

FINRA Closes Out 2021 with Further Guidance on Pandemic-Related Issues for Member Firms

After extensive retrospective review of FINRA Rule 4370, which covers member firm business continuity plan (“BCP”) requirements during times of business disruption (such as the COVID-19 Pandemic), FINRA issued its Retrospective Rule Review Report entitled “Business Continuity Planning and Lessons From the COVID-19 Pandemic.”[1]  In doing so, FINRA issued guidance and summarized stakeholder feedback on such topics as the inspection and registration of temporary/remote offices, Membership Application Program (“MAP”) compliance for those offices, and the ...

Starting this year (2022), most private, domestic U.S. entities will be required to self-report to the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) certain basic information about themselves, their beneficial owners and those individuals authorized to act on their behalf. These new requirements were enacted on January 1, 2021 as part of the Corporate Transparency Act (the “CTA”).[1]  They represent a major departure from the United States’ historic approach to business entity operation, as most private companies have not previously been subject to any beneficial ownership reporting requirements outside the context of a business relationship with a regulated financial institution.  The stated purpose of the CTA is to “discourage the use of shell corporations as a tool to disguise and move illicit funds,” part of a broader federal initiative to prevent and combat money laundering, terrorist financing and tax fraud.

NEW SUSTAINABILITY STANDARDS BOARD TO DEVELOP GLOBAL SUSTAINABILITY DISCLOSURE STANDARDS

The global standardization of ESG and, more broadly, sustainability related disclosure requirements may arrive sooner than anyone could have expected. A recent Financial Times article entitled “New Body to Oversee Global Sustainability Disclosure Standards” (paywall) announces that, in response to investors increasing focus on sustainability and the growing need for clearer standardized company disclosures, the IFRS Foundation, the current administrators of the International Accounting Standards Board, are in the process of forming their newest brainchild: the ...

Ed Ivey’s article published by Thomson Reuter’s Futures & Derivatives Law Report

Moore & Van Allen (MVA) Financial Services Counsel Ed Ivey’s article, “The Future Dominant Reference Rate of the Loan Market: Will There Be One Rate to Rule Them All?”, was recently published by Thomson Reuter’s Futures & Derivatives Law Report

In this article Ed provides his thoughts on (i) the developing loan and derivatives markets’ use of non-LIBOR interest rates, specifically Daily Simple SOFR, Term SOFR, BSBY and Ameribor and (ii) analysis and issues that Lenders and Borrowers may wish consider today when looking at entering into a loan referencing any of these ...

UPDATED: Term SOFR vs BSBY vs Ameribor in the Loan Market

This is an update to a previous post. This update highlights the formal endorsement of Term SOFR by the ARRC, expands the discussion to include Ameribor and dives more deeply into the issues associated with Term SOFR swaps resulting in a mismatch with any related hedge by the Lender.

The ARRC has endorsed (HERE) CME’s Term SOFR. One of the bigger pieces to this announcement and earlier related announcements (Scope of Use Cases), is that U.S. regulators will also permit Term SOFR Swaps, when one of the parties is an “end-user”. When looking only at the loan market, what new reference ...

Term SOFR vs BSBY in the Loan Market

Wednesday, the ARRC announced (HERE) the expectation to endorse CME’s Term SOFR in late July or early August. One of the bigger pieces to this announcement is the announcement that U.S. regulators will also permit Term SOFR Swaps, when one of the parties is an “end-user”. When looking only at the loan market, what new reference rate will be the most common? Term SOFR, BSBY or one of the other SOFR rates? A few thoughts below, but at this point I think Lenders need to begin considering how rate options will be discussed with Borrowers. We have worked with clients to develop guidance on ...

Preemption Update and Future Implications: Congress Repeals The OCC’s True Lender Rule

Congress has voted to overturn the Office of the Comptroller of the Currency’s (“OCC’s”) “true lender” rule under the Congressional Review Act (“CRA”), and the President has signed the resolution. Repeal of the “true lender” rule under the CRA prevents the OCC from issuing any substantially similar rule unless authorized by law to do so.  

The True Lender Rule, which became effective December 29, 2020, provided that a bank would be deemed to have made a loan if, on the date of its origination, the bank either (1) is named as the lender in the loan agreement, or (2) funds ...

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