Author(s):
Joyce M. Bernasek, Lisa Mantello, Jasmyn Lee
Oct 25, 2023
A presentation by partners Joyce Bernasek and Lisa Mantello with associate Jasmyn Lee focuses on recent developments relating to the CDOR (Canadian Dollar Offered Rate) transition. CDOR will be replaced by CORRA (Canadian Overnight Rep Rate Average) on June 28, 2024.
In September of this year, Term CORRA was introduced which provides a term rate for borrowing purposes. Specific use cases for Term CORRA have been provided which are generally for business loan purposes, but also for some derivatives used for the purpose of hedging business loans. Loan agreements will soon need to be amended to include either Term CORRA or daily compounded overnight CORRA. Effective November 1, entering into any new CDOR or Banker’s Acceptance loans will not be possible.
Transcript
JOYCE: Welcome, my name is Joyce Bernasek and I'm a partner in the Financial Services Group at Osler. With me today I have Lisa Mantello, who's also a partner in our group, as well as Jasmyn Lee, who is a senior associate. Thank you for joining us for our third video on CDOR transition. Both Lisa and Jasmyn have been heavily involved on the CDOR transition project. Lisa is the Co-Chair and Jasmyn is the co-secretary of the CARR Accounting, Tax and Regulatory subgroup and they're both active members in other CARR subgroups, including the loan subgroup that drafted the CDOR fallback language, the CARR Credit Agreement Provisions and the Term CORRA use cases. Today, we're going to talk about updates on CDOR transition and the impact that has on loan agreements.
Lisa, the first question that we'd like to talk about is, if you can give us a bit of information on the new Term CORRA rate that went live this month.
LISA: Sure of course, so we are in an exciting time in our market as Term CORRA did go live as of last week, September 5th. Term CORRA is being published by CanDeal Benchmark Administration Services and by TMX data links. In order to use the Term CORRA, users will need to sign a licensing agreement with TMX. This is to ensure that there is compliance with the Use Cases. So, I think as Joyce mentioned at the beginning of this, the use cases are published by CARR, and these are specific use cases for Term CORRA which are for business loan purposes generally and for some derivatives that are really for the purpose of hedging business loans. As we mentioned in our first webinar, the CARR did put out a Term CORRA consultation to see if it was necessary or attractive in the market to have a term rate and the result of that consultation was that borrowers did want a term rate for borrowing purposes and hence, we have Term CORRA. So, after that long road here we are, and the rate was live last week.
JOYCE: That's great and super exciting in terms of milestones. Speaking of milestones, Jasmyn, I know that there have been some CDOR transition milestones that have been put out, are there certain dates that we should be keeping in mind?
JASMYN: Yes, definitely. As Lisa mentioned, it's an exciting time because we're in the final stretch of the CDOR transition. A couple of milestones have passed even this summer as recent as June 30th, which was the date where no new CDOR securities or derivatives could be issued. Next is the November 1st deadline, which is newly put out by CARR, where no new CDOR or BA loans may be entered in to. Now, it's important to remember that not only does this include agreements with new CDOR and BA exposure, but also CDOR and BA loans where you're doing material amendments, pricing adjustments or extensions. This is going to be a big transition and market participants are going to need to pay close attention to the next coming months.
The next deadline is one that's ingrained in all of our minds, which is the June 28th, 2024, deadline, where Refinitiv will publish its final CDOR rate. After that date, market participants are going to need to ensure that a different benchmark rate is included in all of their agreements.
JOYCE: That's great, thank you for going through that, Jasmyn. In terms of that date, I believe the parties are going to be remediating their loans and, Lisa, I'm wondering if you can tell us what it means to remediate your loan?
LISA: Sure, of course. In previous webinars and I think in a lot of previous CARR publications, we really stressed the fallback language, which is really important and is important that there is robust fallback language in loan agreements. But we're now graduating to a different phase, which is that loan agreements need to be remediated, meaning they need to be amended to include either Term CORRA or Daily Compounded Overnight CORRA. So, what this means is that if you were a lender you would approach your borrower and go through with an amendment and restatement or an amendment to ensure that Term CORRA or Overnight CORRA could be operational. CARR did put out a sample credit agreement and this really is for guidance. I should mention that the provisions are really operational in nature, it's not a whole credit agreement. It really is the provisions that go through how Term CORRA would work or Daily Overnight CORRA would work.
JOYCE: Thank you, Lisa, that's very helpful. In terms of what we're seeing in the market, Jasmyn, given all the upcoming changes, could you let us know from your perspective a few things that you're seeing and anything else you'd like to point out?
JASMYN: In terms of Fallback language, we are seeing a high usage of the CARR fallback language. Basically, all new credit agreements include this language and market participants are opening up their credit agreements to amend them to include fallback. Or, when they're amending their credit agreements for other matters, we’ll take that opportunity to add the fallback. So, that's basically been completely adopted in the market.
Then there's the CORRA loan mechanics, which Lisa spoke about that CARR published this summer, we have seen a few banks come to us and ask us to update their forms to incorporate CORRA into their loan mechanics and we expect to see the entire market start adopting this language or similar language given how quickly November 1st is coming up.
JOYCE: Time flies when you're having fun, the famous expression I'm sure that date will come sooner than most people expect. Thank you, Jasmyn.
That was all that we had from our end today. Thank you for joining our video session on CDOR transition. We hope that you found it helpful and if you have any questions, please feel free to reach out to one of us.