Global Financial Institutions Coverage

2 1 DEVELOP AND ADOPT PLANS FOR REPAPERING In 2021, it is essential that corporates have plans in place for negotiating and executing amendments to implement or clarify a replacement rate. Of course, for derivatives contracts, the solution may lie simply in the adherence to the Protocol (as discussed in Step 2), but significant work remains for other affected contracts and instruments. Corporate treasurers will need to plan for how their teams will function during the LIBOR "repapering" phase, which is fast approaching. While much of the repapering process will likely be initiated and administered by financial institutions, we recommend that corporates act proactively to minimize the potential for disruption in the year ahead. Corporate treasury teams, in particular, should be developing and adopting plans that are responsive to the following overarching questions: • Who should be involved in the repapering process? Corporate treasurers should put together cross-functional teams for identifying and amending affected contracts and other transactions with financial institutions, suppliers and customers. Decisions will need to be made on who will be negotiating and executing amendments as well as how outside advisors and technology tools will be used, if at all. • Where should the lines of authority be drawn for key tasks? Corporates will have different approaches as to where the transition is principally managed (for example, some may have an internal program office or "change management" function take on this role, whereas others will look to the corporate treasury function or legal function for principal leadership). However, in all cases, there should be clear lines of authority with respect to amendment negotiation tasks and execution decisions. Any plan should identify which business unit/person is responsible for agreeing on fallback language or replacement rate provisions and when "sign offs" from the corporate treasury or legal functions should be obtained. The development of negotiation parameters and escalation and approval protocols is also important. • What contracts and instruments are "in play"? As discussed, the scoping of relevant contracts and instruments is a gating item for an effective repapering process. The corporate treasury function will be critical not only in identifying financial exposures and counterparties, but in making assessments as to the relative ease of remediation and developing strategies for communicating with counterparties. • When should key tasks and milestones be completed? The ARRC has advised market participants to act on the assumption that LIBOR will end as of December 31, 2021, and the US banking agencies believe entering into new contracts after this date would create "safety and soundness" risks. In November 2020, global regulators made a set of coordinated announcements that will potentially extend the deadline for remediating contracts that reference certain LIBOR tenors by June 30, 2023. Regardless, the steps that need to be taken to negotiate and execute amendments will take considerable time because of the sheer number of contracts and counterparties involved and the analyses that will invariably need to be undertaken on economic, accounting, legal and other issues. Market expectations and "best practices" communicated by various regulators also must be considered when setting deadlines for contract review, pre-negotiation communications, fallback language development, negotiation and execution and other tasks. Corporate treasurers are critical to ensuring operational readiness, which will entail enhancements or modifications to deep-rooted processes and systems, including risk and valuation models.

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