The Financial Conduct Authority’s decision to move away from LIBOR by 1 January 2022 as the primary reference rate for short term lending has left financial institutions and investment funds with the daunting task of reviewing enormous volumes of contracts to determine which of them are impacted by the LIBOR transition, which of them have sufficient fallback mechanisms in place, and which of them need to go through an amendment and repapering process. Although the transition date is more than two years away, affected parties need to start the review process now. This will mark just one step to the eventual global transition away from IBORs generally, as various jurisdictions are in the process of replacing other IBORs such as EURIBOR in the EU, BBSW in Australia, and CDOR in Canada, to name a few.
Kira’s state of the art machine learning technology automatically identifies and extracts information from contracts and comes with over 900 built-in smart fields, a number of which are directly related to IBOR review; 24 credit/facilities agreement smart fields, 14 corporate bond indenture smart fields, and multiple smart fields for ISDA Master Agreement Schedules and ISDA Credit Support Annexes. If the review requires the identification of additional or unusual information, Kira Quick Study can be used to identify virtually any desired clause. Using Kira’s intuitive user interface, organizations gain an immediate high-level understanding of the potential impact an IBOR transition will have on their documents and can quickly tailor and export summaries of important provisions.
Avoid potentially significant commercial implications with fast and accurate document reviews
Permanent LIBOR cessation can have significant commercial implications on affected parties, what may seem like a small deviation in interest rate will be very costly in large debt transactions. Even where impacted documents are correctly identified, in depth legal analysis will be required to ensure that fallback mechanisms are robust enough to withstand a permanent replacement of LIBOR and are satisfactory to affected parties, to avoid the costly exercise of amendments and repapering.
Organizations, and those law firms and consultants assisting organizations, should consider how the transition away from LIBOR could affect their (or their clients’) existing and upcoming debt transactions. They need to act early because, although the transition date is 1 January 2022, this leaves little time considering the number of documents that need to be reviewed and the multiple stages required for a full review.
Kira can quickly review large volumes of legacy contracts and highlight the information that should be reviewed and considered in the context of an IBOR review. This enables organizations to begin preparing a review and repapering plan immediately, and helps mitigate potential financial and other risks associated with IBOR cessation.