McDermott Will & Emery advised Vistra as Issuer across eight pre 2008 legacy Lehman Brothers Japanese apartment loan securitizations, (the Securitizations). Each of the securitizations included a two-tiered structure, i.e. a note issuance vehicle governed under English law which is funded through an underlying bond issuance special purpose vehicle, collateralized by a portfolio of mortgages, governed under the laws of Japan.
In view of the Financial Conduct Authority confirming that Yen Libor would cease to be available from January 1, 2022, McDermott advised on:
- in collaboration with financial advisers, the transition from Yen Libor to potential risk-free rates (such as Tokyo Overnight Average Rate or Tokyo Term Risk Free Rate (TORF)) or an alternative rate such as Tokyo Interbank Offered Rate.
- a full legal analysis of the securitization documentation in order to identify the relevant agreements which would be impacted by proposed amendments in relation to the calculation of interest in relation to the relevant tranches of floating rate notes. In this regard, the Team were able to effectively leverage cutting edge AI technology, which McDermott Will & Emery offer in house, to digitize the documentation and identify provisions across multiple documents which referenced LIBOR;
- the transition from Yen Libor to TORF, once this was deemed to be the most suitable alternative reference rate, and advising on the noteholder consent process including the relevant percentage thresholds for noteholders to vote in favour of the alternative reference rate; and
- the consequences of the transition not being possible in the timeframes leading to the cessation of LIBOR on 1 January 2022. The team enlisted specialist Japanese counsel to provide real time guidance on the potential use of the proposed “synthetic” version of Yen Libor for use in legacy contracts, which was being proposed on a temporary basis, in order to avoid market disruption.
McDermott’s Structured Finance team worked against unyielding and rigorous deadlines to publish requisite notices to the market in order to gauge noteholder feedback on the alternative reference rate before launching consent solicitations in order to obtain the requisite majority approvals to transition the underlying notes from Yen LIBOR to TORF.
Notwithstanding the option to rely on the synthetic rate, it was a race against time, as the McDermott team together with the incredibly driven and resilient team at Vistra, were determined to accelerate the legal process of drafting and finalizing the complex consent solicitation memorandums and related amendment documentation, together with liaising with a myriad of third-party trustees and agents (based across the UK, Europe and Asia), in order to expeditiously launch the consent process and arrange for the initial noteholder meetings to take place within vital timeframes, in view of the impending 1st January 2022 deadline.
“McDermott was extremely efficient whilst remaining diligent and greatly contributing to the success of these transactions despite almost impossible deadlines,” said Phong Lam, Head of Loan Market Solutions at Vistra Capital Markets.
For further insight in relation to this transaction, please see an informative post by Vistra’s Phong Lam who lays out the key lessons learnt in the LIBOR to TORF transition process –https://www.linkedin.com/pulse/managing-8-concurrent-libor-consents-phong-lam/
The McDermott team was led by partner Ranajoy Basu, supported by counsels Priya Taneja and Beth Kuhn, associate Marta Wrobel and trainee solicitors Laura-May Jones and Bethany Drayton
Mori Hamada & Matsumoto advised on Japanese law.
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