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A&O advises on landmark European SOFR loan

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17 December 2019

Allen & Overy has advised a syndicate of 25 lenders, including co-ordinators Barclays Bank PLC ("Barclays") and Bank of America Merrill Lynch International Designated Activity Company ("Bank of America"), on a USD10 billion revolving credit facility for Royal Dutch Shell PLC ("Shell").

This is the first loan agreement governed by English law in the European loan markets to incorporate the Secured Overnight Financing Rate (SOFR), the emerging standard risk-free rate which is intended to replace LIBOR for USD loans.  

Interest on Shell’s facility will initially be based on LIBOR, but the facility contains a mechanism to switch to SOFR, once the bank market is prepared for this, and for the first time in the market, sets out in detail the basis and methodology by which SOFR will be calculated.  The documentation is based on the LMA “exposure draft” for SOFR, published in September 2019, but details were developed further and refined by A&O in discussion with Shell (and its external legal counsel), Barclays, Bank of America and other syndicate banks.  

A&O partner David Campbell, who led the deal from London, commented: "Given the loan size and the large number of banks in the syndicate, this SOFR drafting is likely to set a market precedent for future deals which are based on SOFR.  It’s a great credit to Barclays, Bank of America and Shell that they are prepared to lead the market in this way and devote time and energy to working out the complexities of using SOFR in practice.” 

He continued: "This is exactly the sort of deal where A&O excels.  To ensure the deal would be accepted in the market we brought our market-leading corporate lending expertise together with our debt capital markets team in London, who have advised on SOFR-related bond issuances, and our corporate lending colleagues in New York who comprise a part of our global LIBOR transition advisory team and are monitoring the development of the U.S. SOFR market.  We are proud to have been involved in this landmark transaction – it’s not every day you help set a market standard which may be used for decades to come."

Tushar Morzaria, Group Finance Director at Barclays said: “As Chair of the Sterling Risk Free Reference Rates Working Group, I am delighted that Shell has been able to develop a practical solution for the transition to SOFR. Transactions such as this play a crucial role in establishing conventions that can be widely adopted across the market, and Shell has demonstrated real leadership by engaging with banks to demonstrate a path to a post-LIBOR world. In sterling, we would expect to see SONIA-linked loans become more prevalent in the new year as market participants target the end of Q3 2020 to stop new lending using LIBOR.”

Advice was provided from London by partner David Campbell, global head of banking know-how Fiona FitzGerald and associate Dominique Crowley, and from Amsterdam by partner Femke Bierman and associate Géza Orbán.  Clifford Chance acted for Shell.

This follows on from LVMH's acquisition of Tiffany & Co, another high profile transaction which saw A&O take a cross-border financing role.