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Geopolitical uncertainty: managing market shutdown risks
The renewed Russian invasion of the Ukraine is placing a stark emphasis on financial market participants and also on trading venues needing to have sufficient resilience to weather operational and digital risks – and also to ensure they have fallbacks in place if the power goes out. This is separate to consideration on sanctions and their impact on financial market participants.1 In this Spotlight article, Michael Huertas considers the steps financial market participants need to take in anticipation of a power supply failure, a cyber-attack and military conflict. He draws comparison with the position in France and Germany.
25 March 2024I would if I could, but I can’t: the impact of sanctions on finance party interactions in typical debt-financing transactions
Recent events have thrown the spotlight on sanctions. Sanctions provisions in facilities agreements are frequently keenly negotiated, and most lenders have minimum requirements. We typically see lenders focus more on the activities of the obligor group and its business than on the other lenders and finance parties to the transaction. Accordingly, we anticipate many of our clients revisiting their sanctions policies and giving greater weight to mitigating risks associated with any party to a transaction becoming the subject of sanctions, not just members of the obligor group.
20 March 2024Frozen Russian funds: can the courts let it go?
Following the Russian invasion of Ukraine, billions in assets frozen pursuant to sanctions represent a potentially available source of funds to satisfy the obligations of defaulting Russian debtors. In practice, however, unlocking sanctioned funds is not straightforward. In this Spotlight article, Richard Blakeley considers the extent to which EU member state and UK courts can permit the use of frozen funds to satisfy claims against defaulting Russian debtors following the judgment of the CJEU in Case C‑340/20 Bank Sepah v Overseas Financial Limited and Oaktree Finance Limited.
20 March 2024Sustainable finance: perspectives on some of the difficult questions
This article explores some of the current thinking behind “sustainable finance”. After briefly describing what is involved and offering up some perspectives, it raises questions and sets out modest proposals in reply. Several different questions are raised but the common theme explored is – whether or not sustainable finance as currently envisaged risks making the situation any worse than it already is.
19 March 2024Are leveraged LDI strategies lawful?
In this Spotlight article, Richard Salter KC discusses the legality of the use by defined benefit pension schemes of repos to achieve leverage as part of their liability driven investment (LDI) schemes.
19 March 2024The bubbling emerging market crisis and what the world should do about it
A silent wave of financial stress is running through world financial markets. The proximate cause of the crisis is the combination of COVID-debt and a jump in the US dollar. Fighting the dollar’s appreciation with higher interest rates on debt will push the world into crisis and recession. To forestall the worst, the IMF Board must immediately: – increase access to its unconditional rapid financing facilities; – increase access to its unconditional rapid financing facilities; – temporarily suspend interest rate surcharges; – fulfil their commitment to rechannel to developing countries at least $100bn of its recently issued special drawing rights (SDRs) that give holders automatic access to liquidity; and – agree to a new $650bn SDR allocation. Delay will spread social and economic collapse that will reverberate worldwide. Let us not be quick to save banks but slow to save countries.
19 March 2024Risk elimination by legislating: the limits of the law and challenges of reality
This Spotlight article, the first of two looking at significant policy making challenges, argues that legislators and regulators too often seek to avoid and even eliminate risks, at disproportionate social and economic cost to the desired policy outcomes. This reflects challenges in setting better policy goals. It gives examples across financial services and other sectors. Accountability is needed to achieve outcomes, but not all failures or bad outcomes require change of law or regulation. The balance between improving standards and real outcomes on the one hand, with controlling social and economic costs on the other, needs more complex consideration and comprehensive cost-benefit assessment.
19 March 2024Are the times ripe for “super senior” capital structures that include term loan debt?
In this Spotlight article Francesco Lione considers the pros and cons for rolling out “super senior” capital structures that include term loan debt, in addition to or as an alternative to secured bonds.
19 March 2024Increasing interest? Hedging considerations in light of rising interest rates
If what goes up must come down, then what comes down will go back up; such is the case with interest rates. Taking approximate figures for three-month ICE GBP LIBOR (source: Bloomberg): an increase in that rate from 0.26 bps on 31 December 2021, to 3.36 bps on 1 November 2022, appears steep. It is easy to forget that the same rate was 6.3 bps on 30 September 2008. The present rising interest rate environment is refocussing the minds of borrowers on the importance of hedging interest rate risk.
19 March 2024Governance to keep net zero transitions on track
This Spotlight article sets out a governance framework – comprising robust board oversight, strong alignment mechanisms, and regular external validation – that companies can deploy to ensure that their net zero pledges stay on course. In addition, it illustrates how firms in different sectors are applying the governance measures discussed herein.
19 March 2024
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