As 2023 draws to a close, the Linklaters Banking practice reviews key recent legal developments in the loan markets and the outlook for 2024.
Key topics
1
Benchmark transition
The transition from LIBOR to alternative rates in the loan markets is, for the most part, complete. There remains a small body of legacy LIBOR-referencing loans still to transition for which synthetic LIBOR continues to be published for a while longer. Meanwhile, the LMA has published documentation prompted by the recommendations of the working group on euro risk-free rates on fallbacks to EURIBOR, including drafting referencing term €STR. Term SOFR use cases have been refined, and deadlines and documentation have been published ahead of CDOR cessation in June 2024.
The English courts handed down a number of judgments relevant to loan financing transactions in 2023, including Re Avanti Communications (in relation to the characterisation of fixed and floating charges), Re Galapagos (on the effectiveness of distressed disposal provisions), Astra Asset Management v Odin (concerning break fees under a mandate letter), Euro Securities v Barrett (as to the requirements for witnessing of deeds) and USAF Nominee No. 18 v Watkin Jones & Son (the latest decision on the effect of an assignment by way of security).
The timetable for implementing Basel 3.1 in the UK has been delayed by six months to 1 July 2025, consistent with the US (although not the EU where initial implementation still begins on 1 January 2025). 2024 should bring more detail on the results of HM Treasury’s consultation on reforms to the UK’s ring-fencing regime, which include increasing the threshold at which the ring-fencing rules apply and exempting certain banking groups altogether. Away from the UK, EU member states are required to implement a new EU-wide regulatory framework on non-performing loans by 29 December 2023.
The LMA has continued to work on ESG initiatives for the loan markets, perhaps most notably through the publication of model provisions for sustainability-linked loans and a related term sheet. These were of particular interest in the wake of the publication by the Financial Conduct Authority of its findings from an investigation into the sustainability-linked loan market. More generally, as the business environment has become more challenging, restructuring activity has picked up and is expected to accelerate in 2024. Full balance sheet restructurings are likely to dominate as the amend and extend solution becomes harder to use. The UK’s Part 26A restructuring plan is firmly established, but the risk of challenge from disgruntled creditors cannot be ignored.
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