Global Financial Institutions Coverage

Table here 2 3 As corporates navigate the LIBOR transition, they must anticipate the informational needs of their boards of directors and senior management, financial institution counterparties, and regulators and investors. Effective communication and engagement are critical as the discontinuation of LIBOR draws closer. Corporate treasurers and other finance leadership are on the frontlines of explaining transition- related changes, costs, risks and other considerations. BOARD AND SENIOR MANAGEMENT COMMUNICATIONS The transition represents a market-driven change that commentators have generally described as requiring Herculean tasks of analyzing and remediating contracts and coordinating among counterparties. Boards and senior management will expect periodic updates on the governance and progress of transition programs and related work. Corporate treasurers are integral to ensuring that directors and senior management are not only briefed on the nature and pace of changes but understand those transition-related tasks meriting enhanced attention or resources. Market regulators, particularly the SEC, have been keenly interested in how companies are managing financial and non-financial transition risks, how alternative rates are being assessed, and on companies' plans and processes for operational readiness. Corporate treasurers therefore must be able to respond with precision to questions on these points from directors and senior management as well as from other functions (e.g., legal, risk, technology) and business units. FINANCIAL INSTITUTION COUNTERPARTIES Corporate treasurers and their staff should expect to take an active role in assessing, and developing responses to, communications from these financial institution counterparties. By this point in the transition, nearly all the major global banks and financial institutions have initiated customer engagement programs to educate their clients (corporate borrowers are, of course, clients) on the transition's purpose and highlight key issues and risks. These programs have generally entailed a mix of generic website-based information and/or holding statements on the LIBOR transition and answers to frequently asked questions. More proactive outreach from financial institutions has included client webinars and briefings and, in some cases, direct conversations between clients and relationships managers. Notwithstanding these communication efforts, there is increased urgency by many corporates for "solutions," and for banks and financial institutions to come to them—their clients—with solutions. As the transition draws closer, corporates need to consider effective ways to meaningfully engage with their banking and financial institution counterparties. Corporate treasurers should, in coordination with appropriate business units: • identify relevant relationship managers for the financial institutions that are tied to a company's most material LIBOR exposures; • confirm the corporate or business strategy for each relationship and how best to remediate or address each particular LIBOR exposure (based on work and analyses discussed earlier in this guide); and • develop a communications strategy for each relationship, with information on staff responsible for significant tasks (e.g., research, drafting of talking points or questionnaires) and the timing for initial outreach and subsequent engagements. With these points in mind, corporates should not underestimate the value of acting proactively. Conversations—perhaps, tough conversations—may need to be had. Corporates may wish to ask about a relationship bank's plans for legacy loans and other IBOR-linked products. Relatedly, if corporates are still planning on borrowings linked to LIBOR or another IBOR, then questions should be asked of the relevant lenders as to how loan agreements and related documentation will change to an alternative rate ahead of the cessation. Not least of all, corporates should consider asking their relationship banks about the timing for offering loans and other products that are linked to new RFRs. REGULATORS AND INVESTORS Corporate treasurers and their staff also need to be mindful of their role in supporting a company's relationships with its regulators and investors. The LIBOR transition is of interest to many types of regulators and standard-setting bodies. Even a non-complex business organization may need to make several different types of regulatory disclosures and submissions that contain information regarding its transition. The corporate treasury function should be aware of market practices (including any "best practices") and regulatory expectations relating to the transition and the types of information that may be requested or required by regulators or from other internal staff (e.g., legal, compliance, risk) who are responsible for preparing disclosures or other reports. Clear communication on a company's plan for its transition is also important for maintaining investor confidence.

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