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ARTICLE · 30 SEPTEMBER 2019

Blended Benefits: LIBOR Replacement Provisions In CLOs

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Transactions in the collateralized loan obligation ("CLO") market have generally included some form of LIBOR replacement provisions for over a year, stemming from the announcement in July 2017 ...

United StatesFinance and Banking
Ryan Suda
Ryan Suda
J. Paul Forrester
J. Paul Forrester
Sagi Tamir
Sagi Tamir
Joanna Nicholas
Joanna Nicholas
Arthur S. Rublin
Arthur S. Rublin
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Transactions in the collateralized loan obligation ("CLO") market have generally included some form of LIBOR replacement provisions for over a year, stemming from the announcement in July 2017 by Andrew Bailey, the head of the UK Financial Conduct Authority ("FCA"), that the FCA intended to phase out LIBOR in its present form by the end of 2021. Recently, a new iteration of LIBOR replacement mechanics has debuted. This latest iteration adapts language from the Alternative Reference Rates Committee's ("ARRC") May 31, 2019 recommended fallback language for new issuances of LIBOR securitizations,1 resulting in these CLO provisions being viewed by some as "hardwiring" a replacement reference rate (based on a limited array of prioritized options) into CLO documents. However, while this approach does have an element of hardwiring, in that it specifies a fallback waterfall of particular replacement rates that can be implemented in the CLO without investor consent, the rate

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