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January 3, 2020

Stroock Special Bulletin

By: Richard G. Madris, Michele L. Jacobson, Robert Lewin, Vincent Laurenzano

As you may know, the reference rate known as the London Interbank Offered Rate (LIBOR) is likely to be discontinued after 2021. As regulated institutions are engaged in credit, derivatives, and securities transactions that are linked to LIBOR, its cessation will have a significant impact on such institutions as well as the broader market.  Many regulators are predicting a flood of lawsuits over existing contracts and products that do not contain fallback provisions once the LIBOR reference rate is no longer published.

The New York State Department of Financial Services has announced that it is requiring each regulated institution to submit a response to the Department describing the institution’s plan to address its LIBOR cessation and transition risk.  Institutions covered include property insurance, health insurance and life insurance companies, pension funds, and other depository institutions and non-depository institutions.  Responses are due February 7, 2020.

The plan will need to describe:

(1) programs that would identify, measure, monitor and manage all financial and non-financial risks of transition,

(2) processes for analyzing and assessing alternative rates, and the potential associated benefits and risks of such rates both for the institution and its customers and counterparties,

(3) processes for communications with customers and counterparties,

(4) a process and plan for operational readiness, including related accounting, tax and reporting aspects of such transition, and

(5) the governance framework, including oversight by the board of directors, or the equivalent governing authority, of the regulated institutions.

Stroock is available to assist insurers and other regulated institutions in preparing their plans and responses to the Department, which are due in just 5 weeks.

Stroock is also available to assist clients in implementing such plans; performing legal diligence on existing contracts, products and counterparty arrangements; negotiating amendments, modifications and releases with respect to replacement rates (such as the Secured Overnight Financing Rate or other Alternative Reference Rates); and taking proactive steps to avoid litigation in this area.

For assistance in complying with the mandatory requirement to submit a LIBOR plan to the Department, or other issues in connection with LIBOR cessation and transition, please contact any of the individuals listed below.

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For More Information:

Richard Madris

Michele L. Jacobson

Robert Lewin

Vincent Laurenzano