As market participants prepare to submit comments on the recent proposal of the UK’s Financial Conduct Authority (the “FCA”) (available here) to require the temporary publication of a “synthetic” 1-, 3- and 6-month USD LIBOR, some have voiced concern that such a compelled publication of a synthetic USD LIBOR could precipitate a wave of litigation over whether certain U.S. law-governed contracts will be able to fall back to contractually agreed alternative rates in June 2023.
More Trouble Ahead for the Mortgage Industry If Ginnie Mae’s Risk-Based Capital Requirements Take Effect
The new Ginnie Mae issuer financial requirements, first published on August 17, 2022 in APM 22-09 by joint announcement with the Federal Housing Finance Agency, are scheduled to take effect in two parts beginning September 30, 2023*. See All Participant Memorandum (APM) (ginniemae.gov) and All Participant Memorandum (APM) (ginniemae.gov). Critics of the new financial requirements say they are badly flawed and ill-advised.…
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CFTC Amends Clearing Requirements
On August 12, 2022, the CFTC issued a final rule modifying its clearing requirement for interest rate swaps (“IRS”).
The final rule updates the types of IRS required to be submitted to a registered derivatives clearing organization (“DCO”) for mandatory clearing by:
- eliminating the requirements to clear IRS referencing LIBOR and certain other interbank offered rates (“IBORs”); and
- introducing, in their place, new requirements to clear IRS referencing the relevant replacement risk-free rates, such as the Secured Overnight Financing Rate (“SOFR”) in the case of USD LIBOR.
California Approves Commercial Financing Disclosure Regulations
On June 9, the California Office of Administrative Law (OAL) approved the Department of Financial Protection and Innovation’s (DFPI) proposed commercial financing disclosure regulations issued pursuant to SB 1235. The regulations will become effective on December 9, 2022, and the final regulatory text can be found here. …
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The Role of the Independent Director in a Restructuring
The practice of appointing one or more independent directors to the boards of distressed companies has not only proliferated in recent years, but has become the subject of increasing controversy. In this episode of the Restructure THIS! podcast, John Dubel discusses, among other things, the proper role of an independent director in a restructuring and weighs in on whether he believes the current independent director framework in chapter 11 is broken. In doing so, John addresses some of the most significant criticisms that have been levied against independent directors, including that independent directors often lack disinterestedness and are nothing more than “repeat players” that advocate for preordained outcomes.
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Communicating Distress in the Digital Era
During times of corporate uncertainty, the company’s message to customers, vendors and employees can either instill confidence or foster anxiety. This holds true more than ever in the digital and social media era. In a chapter 11 scenario, then, engaging with, rather than dodging, press calls may be the preferred approach. This provides the opportunity to craft the message as well as address misinformation from leaks.
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Sheppard Mullin and M3 Partners Weigh In on the Potential Drivers of the Next Restructuring Cycle for the ABI Journal
Members of Sheppard Mullin’s Finance & Bankruptcy team recently co-authored an article entitled “When the Other Shoe Drops: Drivers of the Next Restructuring Cycle” with experts from leading restructuring advisory firm M3 Partners for the January 2022 issue of the American Bankruptcy Institute Journal. The article discusses the confluence of factors that Sheppard Mullin and M3 believe will contribute to an uptick in restructuring activity in the future, including the eventual tightening of credit markets and a variety of pre-pandemic and post-pandemic headwinds.
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Security-Based Swap Rules for End-Users
As of November 1, 2021, dealers in security-based swaps (“SBS”) whose dealing activity exceeds certain de minimis thresholds (e.g., gross notional amount of $3 billion for credit default SBS, $150 million for other SBS, and $25 million for SBS where the counterparty is a special entity) are required to register with the SEC as a security-based swap dealer (“SBSD”) and to comply with the SEC’s regulations applicable to SBS. Many dealers exceeded these thresholds and filed for registration on or prior to November 1. Other dealers who exceed these thresholds later will be required to register at a future date.
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NIGC Issues New Guidance on Financing Document Reviews and Declination Letters
The National Indian Gaming Commission (“NIGC”) issued guidance this week for tribes and tribal lenders who submit loan documents to the NIGC for a so-called “declination letter.” Bulletin No. 2021-4, “Submission of Loan Documents and Financing Documents for Review,” summarizes criteria the agency has developed in the last decade for determining whether loan documents constitute “management” contracts, which under federal law must be approved by the NIGC Chairman or they are void. The Bulletin states that while the Office of General Counsel will continue to review loan documents and issue opinions as to whether the documents provide the lender with the ability to manage the gaming operation, contracts that “adhere to the principles and analyses” outlined in the Bulletin would likely receive an opinion letter that the contract does not need to be submitted for approval as a management contract.
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Seven Commandments for the Financially Distressed Company
Most restructuring professionals will tell you that there is no “typical” restructuring. That is absolutely true. Every financially distressed business is different and the character and direction of its restructuring will be highly dependent upon, among others, its capital structure, its liquidity profile, and the level of support it can build for its reorganization among key stakeholder bodies. Nevertheless, there are some important similarities in the way that any company should initially address a distressed situation. We discuss below a variety of key tasks, or “commandments,” that we recommend any company should undertake as soon as it anticipates possible financial distress.
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LSTA Publishes Term SOFR Concept Document
On August 25, the LSTA published its Term SOFR Concept Document (the “Term SOFR Concept Document”)—the latest addition to its suite of SOFR-based Concept Documents.
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