Ashurst Quarterly Debt Capital Markets Update Q4 2021

We have a number of different developments to report on in this edition:

• Goodbye to LIBOR?
• Syndicated distribution of debt securities - New DvP model
• Commission designates replacement rates for certain CHF LIBOR settings and for EONIA
• What is an "offer of securities to the public"?
• Establishment of the International Sustainability Standards Board (ISSB)
• ICMA Primary Market Handbook selling restrictions and legends updated for use after the end of the Brexit transition period
• Law Commission publishes its advice to Government on smart legal contracts
• FCA Listing Rules amended following the Primary Markets Effectiveness Review
• Regulation establishing technical screening criteria under the EU Taxonomy Regulation
• Sustainable Finance: New FCA disclosure requirements
• Critical Benchmarks (References and Administrators' Liability) Act 2021

Goodbye to LIBOR?

With effect from 31 December 2021, ICE Benchmark Administration (IBA), the administrator of the LIBOR benchmark, ceased publication of most of its 35 LIBOR settings covering sterling, US dollar, Japanese yen, Swiss franc and euro. However this is subject to a number of transitional measures designed to avoid a cliff-edge on 1 January 2022 for contracts which for legitimate reasons have not been able to transition away from LIBOR before that date. In particular:

• IBA will continue to publish five US dollar settings (overnight, and 1-, 3-, 6- and 12-month) based on the current "panel bank" LIBOR methodology (which will continue to be regarded by the FCA as "representative" for UK Benchmarks Regulation (UK BMR) purposes) until 30 June 2023, but the use of these rates by UK supervised entities will be restricted to certain legacy contracts.
• With effect from 1 January 2022, the FCA has designated the remaining six sterling and Japanese yen LIBOR settings (1m, 3m, and 6m) as Article 23A benchmarks for UK BMR purposes and is using its powers to compel IBA to continue to publish these six LIBOR rates on a non-representative ("synthetic") basis, but again UK supervised entities will only be permitted to use these rates in certain legacy contracts.

For more information see the Ashurst LIBOR Transition portal.

Syndicated distribution of debt securities - New DvP model

On 20 October 2021 ICMA published on its website a paper entitled "New Model for Syndicated Closings in the ICSDs" which it has prepared in conjunction with Euroclear and Clearstream and ICMSA.

The principal feature of this new syndicate closing model is that the ICSDs will require every bank which acts as a Lead Manager to open a new "commissionaire account" with one or other of the ICSDs. This commissionaire account will be governed by Belgian law (in the case of Euroclear) or Luxembourg law (in the case of Clearstream) and will be for the benefit of the Lead Manager but will grant the Issuer third party rights under a third-party beneficiary clause (‘stipulation pour autrui’).

The ICMA paper explains the current and new syndicate closing models and suggests related amendments to transaction documentation. The new model was expected to take effect in December 2021, but on 21 October 2021 the ICSDs announced the postponement of the intended launch date to 14 March 2022.

Commission designates replacement rates for certain CHF LIBOR settings and for EONIA

On 22 October 2021 the following Regulations made under the EU Benchmarks Regulation were published in the Official Journal:

• Commission Implementing Regulation (EU) 2021/1847 designating replacement rates for 1-month, 3-month, 6-month and 12-month CHF LIBOR (The replacement rates are the 1-month or 3-month SARON Compound Rate together with the fixed spread adjustment stipulated in the Regulation for each relevant tenor); and.
• Commission Implementing Regulation (EU) 2021/1848 which designates the Euro short-term rate (€STR) as the replacement rate for EONIA.

These Regulations apply from 1 January 2022 and 3 January 2022, respectively.

What is an "offer of securities to the public"?

In October 2021 an important court decision on the EU Prospectus Regulation was published in English. The decision concerns the interpretation of:

• what constitutes "sufficient information" to be an offer of securities to the public for the purposes of Article 2(d); and
• what constitutes an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors for the purposes of Article 1(4)(d).

This is a decision of the EFTA court delivered on 18 June 2021 in ADCADA Immobilien AG PCC in Konkurs v the Financial Market Authority (Finanzmarktaufsicht) (Case E-10/20). While decisions of the EFTA Court are advisory only and are not binding on the Court of Justice of the European Union (CJEU), its judgments are taken into account by the CJEU and are likely to be persuasive in English courts where relevant (as in this case).

The EFTA Court concluded that certain relatively brief promotions for securities published on the internet must be considered as presenting "sufficient information" within the meaning of Article 2(d). It also concluded that if a communication already presents sufficient information, the inclusion of statements that further information may be obtained elsewhere will not be capable of altering its qualification as an “offer of securities to the public”.

The EFTA Court also went on to say that the limit of 150 persons cannot be circumvented by disseminating the offer in an EEA State through various different media on the basis that the communication of the offer through one medium is not to be aggregated with the communication of the offer through any other medium.

Establishment of the International Sustainability Standards Board (ISSB)

On 3 November 2021, the International Financial Reporting Standards (IFRS) Foundation published a press release announcing the formal establishment of the International Sustainability Standards Board (ISSB). The ISSB will sit alongside and work in close cooperation with the International Accounting Standards Board (IASB). Both will be overseen by the Trustee of the IFRS Foundation with the intention of ensuring connectivity and compatibility between IFRS Accounting Standards and the ISSB’s standards— to be known as the IFRS Sustainability Disclosure Standards.

The establishment of the ISSB and a number of other technical developments described in the press release lay the groundwork for a global sustainability disclosure standard-setter for the financial markets which will fulfil the growing and urgent demand for streamlining and formalising corporate sustainability disclosures. International Financial Reporting Standards (IFRSs) and IFRS Sustainability Disclosure Standards will complement each other with the aim of providing comprehensive information to investors and other providers of capital.

ICMA Primary Market Handbook selling restrictions and legends updated for use after the end of the Brexit transition period

On 19 November 2021 ICMA announced that the ICMA Primary Market Handbook has been updated to include the post-Brexit standard language that ICMA circulated informally in December 2020. In addition, EU regulatory references in certain ICMA Recommendations and other language have been updated to refer also to UK regulation, where relevant.

ICMA also note in this announcement that post-Brexit amendments to Appendix A7, ECP documentation for Investment Grade issuers, and Appendix A8, Final terms and pricing supplement, are pending and will be published in due course alongside other updates to those Appendices.

Law Commission publishes its advice to Government on smart legal contracts

On 25 November 2021 the Law Commission published the results of its investigation into how the existing law of contract in England can apply to what are commonly called "smart contracts" - legally binding contracts in which some or all of the contractual obligations are defined in and/or performed automatically by a computer programme instead of requiring some physical effort from one or more of the parties. The Commission concluded that:

• the current legal framework is able to facilitate and support the use of smart contracts;
• current legal principles can apply to smart contracts in much the same way as they do to traditional contracts; and
• difficulties associated with applying the existing law to smart contracts are not unique to them, and could equally arise in the context of traditional contracts.

FCA Listing Rules amended following the Primary Markets Effectiveness Review

On 2 December 2021 the FCA published a policy statement (PS21/22) on its proposed changes to the Listing Rules (and minor changes to the DTRs and PRRs) along with final texts of those rules which, by and large, came into force on 3 December 2021. The changes essentially affect listings of shares and are only of tangential importance to listings of non-equity securities.

Regulation establishing technical screening criteria under the EU Taxonomy Regulation

On 9 December 2021 Commission Delegated Regulation (EU) 2021/2139 supplementing the EU Taxonomy Regulation and containing the first technical screening criteria was published in the Official Journal of the European Union. It will apply from 1 January 2022. This Delegated Regulation essentially consists of two Annexes (though it runs to 350 pages): Annex 1 sets out the criteria for climate change mitigation and Annex 2 sets out the criteria for climate change adaptation. For each activity, both Annexes also detail the criteria that must be met for that activity to be deemed to cause no significant harm to any relevant environmental objectives.

Sustainable Finance: New FCA disclosure requirements

On 17 December 2021, the FCA published two ESG-related policy statements:

• PS21/23 on Listing Rules changes to extend climate-related disclosure requirements to standard listed companies and to provide new guidance for premium listed companies; and
• PS21/24 on enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers.

In PS21/23 the FCA says that it will make further announcement in H1 2022 concerning prospectus disclosure for green bonds and sustainability linked bonds.

Critical Benchmarks (References and Administrators' Liability) Act 2021

On 15 December 2021, the Critical Benchmarks (References and Administrators' Liability) Act 2021 received Royal Assent. The Act amends the UK Benchmarks Regulation to provide for the automatic transition of LIBOR-referencing contracts to synthetic LIBOR after the end of 2021 and to incorporate safe harbour provisions protecting users of synthetic LIBOR and LIBOR's administrator. For more information, see this Ashurst briefing.

Visit our Finance Hub for analysis and commentary on developments affecting global financial markets, including the EU Prospectus Regulation, the EU Benchmarks Regulation, PRIIPs/KID, EU EMIR and LIBOR transition.