June 15, 2023

Debt Download

Welcome to Debt Download, Goodwin’s monthly newsletter covering what you need to know in the leveraged finance market. We hope you are enjoying some early summer weather and (if you live in the Northeast) are breathing easier!

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In the News

Goodwin Insights

This month marks the last month of the publication of a representative USD LIBOR, which will cease being published on June 30th. Companies that have yet to switch their debt or other LIBOR-linked products to a replacement rate face operational difficulties starting next month. The WSJ reports that approximately 55% of loans in CLOs were still tied to LIBOR as of May 30th, which may serve as a proxy to estimate how much of the loan market in general had not yet transitioned away from LIBOR as of that date, though there has been a steady stream of SOFR transition amendments. However, interest rates under contracts that have yet to transition from LIBOR will soon be determined by reference to CME Term SOFR. Pursuant to federal law and related regulations adopted by the Federal Reserve, on July 3, 2023, applicable U.S.-governed agreements with no fallback language will automatically transition to CME Term SOFR plus the applicable ISDA/ARRC spread adjustments of ~11 bps for 1 month, ~26 bps for 3 months, and ~43 bps for 6 months. Likewise, for non-U.S.-governed agreements with no fallback mechanism, the FCA announced that an unrepresentative synthetic USD LIBOR – which is also just CME Term SOFR plus the same ISDA/ARRC spread adjustments – will be published through September 30, 2024. In both cases, the automatic fallback is intended to be used only for legacy deals with no fallback mechanism – not for new deals – and is not expected to have a large impact on the leveraged loan market.

In Case You Missed It – Check out these recent Goodwin publications: ILPA Publishes Guidance on Continuation Funds and Durations in M&A Exclusivity Periods Increased Significantly Since 2021.

For inquiries regarding Goodwin’s Debt Download or our Debt Finance practice, please contact Dylan S. Brown, Nikolaus J. Caro, and Robert J. Stein.

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