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Brexit Law - the way ahead

 
 

 

 

Capital markets and financing

Preparing for a hard Brexit - ten points relevant to mainstream debt capital market issuance

It is anticipated that the UK Parliament will hold its “meaningful vote” on the Brexit deal in the week commencing 14 January. If Parliament votes down the deal, a number of scenarios could arise. Whilst not inevitable, one of these scenarios is that the UK will leave the EU on 29 March 2019 without a deal – a so-called “hard Brexit”. A hard Brexit will mean that the UK will not be a Member State of the EU and that Union law will not be applicable in the UK.

In light of this, we set out below a high-level discussion of ten points for action and issues for consideration to assist issuers and other participants in the mainstream debt capital markets in preparing for a hard Brexit. The UK Government has announced measures which will address some concerns of issuers accessing UK markets following a hard Brexit. We have not seen any similar measures contemplated by the EU to date. Therefore, our points below focus principally on the impact of a hard Brexit on accessing EU27 markets and complying with EU27 regimes post-Brexit. We do not cover the UK domesticated regime post-Brexit, but if you would like general information in relation to the EU (Withdrawal) Act 2018 and the legislative position in the UK post-Brexit, please refer to other Brexit publications on our website. Finally, while many of the points below will apply equally in relation to covered bond and structured finance transactions in general, there will also be additional points to consider in those contexts which we do not cover in this paper (for our Brexit publications relating to these areas, please refer to our website).

Download Preparing for a hard Brexit - ten points relevant to mainstream debt capital market issuance

Securitisation – scoping out the key considerations and possible implications

Notwithstanding that the EU ABS markets are significantly impaired compared to pre-financial crisis levels, securitisation remains an important funding tool and risk-transfer mechanism for institutions established in the UK and elsewhere. This importance has been expressly acknowledged by the EU Commission in the context of its Capital Markets Union (CMU) initiative and the corresponding workstream to revive the markets through the introduction of a new regulatory framework for securitisation.

In this article we identify certain key considerations for securitisations arising as a result of Brexit, and seek to scope out the possible implications. It should be noted that how the UK Government legislates for Brexit and the nature of the future relationship between the UK and the EU are fundamental elements of the relevant analysis and may shape certain outcomes.

Download Securitisation – scoping out the key considerations and possible implications

Impact on debt and equity financing transactions

For the most part, Brexit and events leading up to it are unlikely, in themselves, to have a significant direct impact on existing or new bank, bond or equity financing transactions governed by English law. Brexit should not affect the parties’ rights or obligations.

For typical loan facilities, including corporate lending and leveraged finance deals, the "leave" vote itself will have no immediate effect on the vast majority of existing deals. However, economic upheaval caused by the vote could have contractual consequences.

In this article, we examine some of the possible consequences of Brexit for existing and new debt financing (whether via loans or bonds) and equity financing transactions governed by English law.

Download Impact of Brexit on debt and equity financing transactions

Impact on derivatives

The terms of existing derivatives deals will not be significantly impacted by the "leave" vote, although movements in underlying markets might result in margin calls, actions may be required to mitigate rating downgrades and defaults could ensue. Product-specific provisions such as the "increased cost of hedging" provisions in equity derivatives may also become applicable.

In this article, we highlight some of the areas in which Brexit may impact the derivatives markets and discusses possible documentation, regulatory and legal implications.

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Impact on the UK covered bonds market

Covered bonds benefit from preferential regulatory treatment under the current EU framework. Since the introduction of the national statutory framework in 2008, UK regulated covered bonds have been on a level playing field with more traditional EU covered bond products in that they benefit equally from this better treatment. However, Brexit could result in a shift in the current position, meaning that UK covered bonds may once again face a competitive disadvantage, as they did prior to 2008.

In this article we identify certain key considerations for UK covered bonds arising as a result of Brexit and consider the possible implications and what they may mean in practice.

Download Impact of Brexit on the UK covered bonds market

 
 
 
 
 
 
 
 
 
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