Notice regarding the reform and/or discontinuation of interest rate benchmarks

This notice is to alert you to certain potential risks related to the material change or discontinuation of interest rate benchmarks used in financial products across the world, also known as reference rates or benchmark rates. This notice may be relevant to you if you currently hold, or expect to enter into, agreements referencing interest rate benchmarks including but not limited to: LIBOR (London Interbank Offered Rate) and EONIA (Euro OverNight Index Average) (in each case, a “transaction”). Changes to these interest rate benchmarks can affect customers who use a variety of our products, including loans, leases and inventory finance.

You should keep up to date with the latest industry developments in relation to interest rate benchmark reform and/or discontinuation and consider its impact on your existing transactions, as well as on any new transactions you enter into.

Benchmark reform risks
Following international efforts to reform interest rate benchmarks, a number of well-known and widely-used interest rate benchmarks are expected to be reformed or discontinued. The proposals for each interest rate benchmark vary in terms of scope and expected timing. In relation to LIBOR, the Financial Conduct Authority has announced that it will no longer compel banks to submit to LIBOR beyond 31st of December 2021, meaning that market participants should not rely on LIBOR being available beyond that date. For most interest rate benchmarks that are to be discontinued, alternatives or replacements have already been, or are currently being, developed. Following the implementation of any such reforms, (a) the manner of administration or calculation of interest rate benchmarks may change, with the result that they may perform differently than in the past, (b) certain interest rate benchmarks could be eliminated entirely, (c) before any interest rate benchmark stops being published altogether, regulators may announce that an existing interest rate benchmark is no longer representative of the relevant underlying market. This could, among other things, result in fallback wording becoming operative under the documentation for certain transactions, which could have various effects, including causing the referenced interest rate benchmark for the transaction to change.

The reform and/or discontinuation of interest rate benchmarks presents various risks which may have a material financial/economic or other impact on the transaction and you should therefore seek your own independent tax, legal, regulatory, accounting, or other appropriate advice. These risks include, but are not limited to:

(i) changes to the manner in which an existing interest rate benchmark is calculated, or differences between the manner in which a replacement interest rate benchmark and the original interest rate benchmark are calculated, could materially impact or change the value, price, cost and/or performance of the affected transaction in the future;

(ii) replacement interest rate benchmarks for existing interest rate benchmarks may differ across transactions, and those differences may create material economic mismatches, including basis risk if you are using any transactions for hedging or similar purposes; it may for example cause the transaction not to hedge any underlying exposure as effectively;

(iii) the manner of adoption or application of alternative interest rate benchmarks in the various jurisdictions and/or (product) markets may differ materially compared with the application and adoption of any of such alternative interest rate benchmark in other jurisdictions or markets. You should carefully consider how any mismatch between the adoption of alternative interest rate benchmarks across these jurisdictions or (product) markets may impact any of your hedging or other financial arrangements;

(iv) some contracts for existing transactions may include fallback wording which provides for a replacement interest rate benchmark if the original interest rate benchmark is (temporarily) unavailable, while others may not or may provide rights to DLL Group to exercise discretion to determine a replacement interest rate benchmark. You should consider how such fallback wording will operate and how it might impact your financial arrangements;

(v) DLL Group may require any price, adjustment spread or other adjustments to account for differences between the replacement interest rate benchmark and the original interest rate benchmark, which may impact your financial arrangements; and

(vi) new interest rate benchmarks are likely to be developed over time as current interest rate benchmarks stop being published, and these new interest rate benchmarks may be materially different from both the original interest rate benchmarks and replacement interest rate benchmarks that are being currently considered; and

If you proceed with a new transaction you are deemed to understand and accept these risks.

Should you have any questions in respect of this notice, do not hesitate to reach out to your DLL Account Manager, or contact us via benchmark.rate.reform@dllgroup.com. Please note that DLL Group does not provide advice or recommendations on the suitability of your product choice, including with respect to any interest rate benchmark reform and/or discontinuation, as set out in the below disclaimer.

Disclaimer
DLL Group cannot provide any assurances as to the materialisation, consequences, or likely costs or expenses associated with any of the changes or risks, including, but not limited to, those set out above, arising from interest rate benchmark reform and/or discontinuation, though they may be material to you. This notice has been prepared for informational purposes only. It does not provide an exhaustive overview of all information and risks relating to interest rate benchmark reforms and/or discontinuation and is not intended to provide and should not be relied upon for tax, legal, investment, regulatory or accounting advice. DLL Group is not providing advice regarding the materiality or likelihood of the preceding risks associated with interest rate benchmark reform and/or discontinuation, or more generally in relation to the use, change, or reform of any interest rate benchmark. You should seek your own tax, legal, regulatory, accounting, or other appropriate advice before taking further action or engaging in any transaction. This notice represents DLL Group’s current understanding and material developments may have occurred after this notice was prepared. DLL Group has no obligation to update or correct the information contained in this notice. This notice is without prejudice to, and should be considered in conjunction with, any agreements, terms of business, disclaimers, disclosures, or other statements informing, alerting you about or identifying potential risks provided to you by DLL Group, including specific risks related to the reform and/or discontinuation of interest rate benchmarks.