Posts by: Howard S. Altarescu

LIBOR “Transition”

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While there is a way to go until the end of 2021 when panel banks will no longer be required to provide LIBOR quotes to the FCA, we expect to see more and more discussion regarding alternative benchmarks that might be used on outstanding and on new financings, the issues raised by the possible alternatives, overnight and term financing considerations, credit spreads and all related issues. Three recent statements and papers distributed by the SFIG LIBOR Task Force late last week begin to discuss these issues.

ISDA, AFME, ICMA, SIFMA and SIFMA AMG Publish Global Benchmark Report

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The International Swaps and Derivatives Association (“ISDA“), the Association of Financial Markets in Europe (“AFME“), International Capital Market Association (“ICMA“) and the Securities Industry and Financial Markets Association (“SIFMA“) and its asset management group (SIFMA AMG) have published a new report that assesses the issues involved with benchmark reform, and makes recommendations on steps firms can take to prepare for the transition from interbank offered rates (“IBORs“) to alternative risk-free rates (“RFRs“). Click here to read the full report.

GAO Report Finds Regulators Could Take Further Steps to Better Protect Fintech Consumers

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In a report released March 22, 2018, the U.S. Government Accountability Office (“GAO“) explained that existing laws and regulations may not be adequate to mitigate the risks posed by the increasingly widespread usage of fintech products and services. The report, which was prepared in response to a request from Congress, covers four major fintech product and service areas—payments, lending, wealth management, and distributed ledger technology.

In its report, GAO made numerous recommendations to regulators with the hope of “improving interagency coordination on fintech, addressing competing concerns on financial account aggregation, and evaluating whether it would be feasible and beneficial to adopt regulatory approaches similar to those undertaken [abroad].”

Click here to read the full report and here to read the highlights.

Recent Tax Legislation May Boost Impact Finance

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The U.S. Tax Cuts and Jobs Act (the “Act“), signed into law on December 22, 2017, creates a process to designate certain low-income community census tracts as “qualified opportunity zones” and lets investors temporarily defer taxes by investing capital gains in these designated qualified opportunity zones. The provision is designed to encourage investment in these low-income areas. The provision was based on the Investing in Opportunity Act that was introduced in 2016.

For a tract to be designated as a qualified opportunity zone, the state governor nominates the tract for designation within 90 days after the enactment of the Act, and then the U.S. Treasury must approve the designation within 30 days. The designation remains in effect for 10 years. Up to 25 percent of the total number of low-income census tracts in a state can be designated. The Act allows for temporary deferral and some reduction of capital gains that are reinvested in qualified opportunity funds (entities with at least 90 percent of their assets invested in qualified opportunity zone property) and held for five to seven years, and permanent exclusion of capital gains from sale or exchange of investments in qualified opportunity funds that are held for at least 10 years.

The final Act also preserved certain tax credits related to community development and renewable energy that earlier versions had proposed eliminating. The Act retains low-income housing tax credits, as well as private activity bonds, used to finance affordable housing; new markets tax credits; and investment tax credits and production tax credits for renewable energy projects. The Act also preserves the 20 percent historic rehabilitation tax credit but implements a longer claim period and eliminates the 10 percent credit (subject to transition rules).

New York Regulator’s Fintech-Charter Lawsuit Dismissed

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On December 12, 2017, a federal judge in Manhattan dismissed a state regulator’s lawsuit challenging the Office of the Comptroller of the Currency’s (“OCC“) federal-fintech-charter effort, finding that legal challenges to the initiative were premature. In an order filed Tuesday, the judge found that the lawsuit filed in May by New York’s Superintendent for Financial Services Maria Vullo lacked merit, because the OCC’s initiative hasn’t been implemented yet. To view the full article, click here.

CFTC Issues Proposed Interpretation on Virtual Currency “Actual Delivery” in Retail Transactions

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On December 15, 2017, the Commodity Futures Trading Commission (“CFTC“) announced a Proposed Interpretation concerning its authority over retail commodity transactions involving virtual currency, such as bitcoin. Specifically, the Proposed Interpretation sets out the CFTC’s view regarding the “actual delivery” exception that may apply to virtual currency transactions. The Proposed Interpretation is open for public comment for 90 days from publication in the Federal Register. To view the full article, click here.

EIB and European Commission Launches Advisory Service to Help Cities Plan Investments

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On November 28, 2017, the European Investment Bank (“EIB“) and the European Commission launched UBRIS (for “Urban Investment Support“), an urban advisory service with the goal of assisting cities in member states in accessing finance.  UBRIS will help design, plan and implement investment strategies and projects, including providing technical and financial advice.

Cities can apply for UBRIS assistance at the European Investment and Advisory Hub.  Eligibility criteria note that URBIS will prioritize cities seeking support related to a sustainable urban strategy with a view of developing, financing and implementing urban investment programs and that advice should be given on sustainable urban investments, in particular smart, green and socially inclusive investments.

According to press releases of the European Commission and the EIB, UBRIS will help with the following:

  • Improve a city’s investment strategy by giving advice in strategic planning, prioritizing and optimizing of investment programs and projects.
  • Bring projects and investment programs to a bankable stage, including by providing analysis on demand or support in financial structuring and by reviewing draft grant applications.
  • Explore opportunities for financing under the European Fund for Strategic Investments and/or the Cohesion Policy funds.
  • Support the preparation work for investment platforms and facilities combining funds, liaise with financial intermediaries and set up implementation arrangements for these facilities.
  • Develop financing approaches aiming at alleviating the burden on municipal debt and at helping municipal companies and private urban service providers access funding.

UBRIS will initially use EIB advisory and project services and focus on selected assignments.  The EIB and the European Commission will assess the initial work in the second half of 2018 and may consider additional resources at that time.

The EIB and European Commission press releases announcing UBRIS are available here and here.

The Impact of the House and Senate Bills on Financing Transactions

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On November 2, 2017, House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced a tax bill entitled the Tax Cuts and Jobs Act, and later proposed amendments to the bill on November 3, November 6, and November 9, 2017. The House passed the amended version of the bill on November 16, 2017. On November 9, 2017, Senate Finance Committee Chairman Orrin Hatch (R-UT) released a Senate version of the bill, and later proposed amendments to the bill on November 14, 2017. On November 16, 2017, the Senate Finance Committee approved the bill after making some last minute changes in a manager’s amendment. The Senate is expected to take action on its version of the bill sometime after the Thanksgiving break. If the bill is passed by the Senate, the conference committee will attempt to reconcile the House and Senate versions of the bill. If the bill were to become law, there would be certain fundamental changes to the taxation of financing transactions.

Click the chart above to view a larger version

A brief summary of the comparison of the impact of the House and Senate versions of the bill on financing transactions is available here. A more detailed version of such comparison is available here.

Please feel free to contact a member of the Orrick Tax practice group for further up-to-date details as these developments continue to unfold.