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Cadwalader Partner David Burkholder Debates LIBOR Transition Issues

As a panelist at the CREFC 2019 Annual Conference, Cadwalader Partner David Burkholder discussed (i) key differences between LIBOR and SOFR, (ii) the issues involved with developing a term SOFR rate and (iii) the operational challenges presented by the transition.

Here are the key takeaways from the panel discussion:

  • Market participants need to study the securitization working group’s fallback language that was published by the Federal Reserve's Alternative Reference Rates Committee on May 31, 2019, and how it can be implemented in future transactions.
  • The process of developing a term rate for SOFR takes time. It is dependent on market participants’ involvement to create the necessary transactional data to support the publication of a term rate. Market participants should not assume that a term rate will be available before LIBOR ceases to be published.
  • Market participants must assess their individual exposure to LIBOR and develop concrete plans to address its eventual cessation.
  • There are significant operational hurdles that will require collective and coordinated activity by market participants to ensure that the transition to a SOFR-based rate can occur with minimal market disruptions.
  • Market participants should consider the benefits of originating loans and financial instruments based on SOFR now to avoid the risks associated with having to convert from LIBOR to a SOFR-based rate in the future.

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