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Allen & Overy advises on world's first SONIA and SOFR multicurrency loan agreement

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Brown Greg
Greg Brown

Partner

London

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Leckie Elizabeth
Elizabeth Leckie

Partner

New York

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Bierman Femke
Femke Bierman

Partner

Amsterdam

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Ben Davies

Senior Media Relations Manager

London

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12 March 2020

Allen & Overy has advised a syndicate of 21 lenders, including co-ordinators Barclays Bank PLC ("Barclays") and HSBC Bank PLC ("HSBC") on a GBP6 billion revolving credit facility for British American Tobacco ("BAT").

This is the world’s first multicurrency loan agreement to incorporate both the Sterling Overnight Index Average ("SONIA") and the Secured Overnight Financing Rate ("SOFR") – the emerging standard reference rates intended to replace LIBOR for sterling and USD loans respectively. It also incorporates the Euro short-term rate ("€STR") as the reference rate for euro swingline loans, which is intended to replace EONIA as the overnight euro rate.

Interest on BAT’s revolving facility loans will reference LIBOR or EURIBOR until the facility agreement’s trigger mechanism switches the reference rate from LIBOR to, for loans in sterling, SONIA, and for loans in USD, SOFR. For the first time in the market, the facility agreement incorporates the use of the SOFR index published by the Federal Reserve Bank of New York, as well as a mechanism for BAT and the lenders to select a SONIA index.

The documentation is based on BAT’s existing facility agreement, the risk-free rates provisions draw on the LMA’s “exposure drafts” and the SONIA and SOFR multicurrency provisions were developed by A&O in discussion with Barclays, HSBC, BAT (and its external legal counsel, Herbert Smith Freehills) and other syndicate banks.

A&O partner Greg Brown, who led the deal from London, commented: "We're proud of the work we've done to advise the syndicate of lenders on this loan agreement – another first-of-a-kind transaction for A&O. Our multi-disciplinary team brought together our experienced corporate lending team as well as teams focused day-to-day on LIBOR transition in London, New York and Amsterdam. I believe that the execution of this loan will pave the way for future multicurrency loan arrangements as LIBOR is replaced."

Advice was provided from London by partner Greg Brown, global head of banking know-how Fiona FitzGerald and associate Dominique Crowley; from New York by partner Elizabeth Leckie and senior counsel Livia Talenti; and from Amsterdam by partner Femke Bierman, senior associate Karin Hoenson-van den Berg and paralegal Cobie Kuipers.

The Working Group’s Loan Enablers Task Force has outlined a path for the discontinuation of new Sterling LIBOR-based cash lending by end-Q3 2020.