4 Funder Terms (the “Terms”)
- Definitions; Benchmark
“Approved Currency” means United States Dollars.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark Rate, as applicable, (x) if such Benchmark Rate is a term rate, any tenor for such Benchmark Rate (or component thereof) that is or may be used for determining the length of an interest period pursuant to these Terms or (y) otherwise, any payment period for interest calculated with reference to such Benchmark Rate (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark Rate, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark Rate that is then-removed from the definition of “Tenor” pursuant to the section titled “Benchmark Replacement Setting.”
“Benchmark Rate” means, initially, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” shall mean the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (i) of the section titled “Benchmark Replacement Setting.”
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the alternate benchmark rate that has been selected by Bank giving due consideration to (i) any selection or recommendation of a replacement rate or the mechanism for determining such a rate by a Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark Rate; provided that, if the Benchmark Replacement as so determined would be less than zero, the Benchmark Replacement will be deemed to be zero for purposes of these Terms.
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark Rate:
a. in the case of clause (a) or (b) of the definition of “Benchmark Transition Event”, the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark Rate (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark Rate (or such component thereof); or
b. in the case of clause (c) of the definition of “Benchmark Transition Event”, the first date on which such Benchmark Rate (or the published component used in the calculation thereof) has been determined and announced by or on behalf of the administrator of such Benchmark Rate (or such component thereof) or the regulatory supervisor for the administrator of such Benchmark Rate (or such component thereof) to be non-representative or non-compliant with or non-aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks; provided that such non-representativeness, non-compliance or non-alignment will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark Rate (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark Rate upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark Rate (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark Rate:
a. a public statement or publication of information by or on behalf of the administrator of such Benchmark Rate (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark Rate (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark Rate (or such component thereof);
b. a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark Rate (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark Rate (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark Rate (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark Rate (or such component), which states that the administrator of such Benchmark Rate (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark Rate (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark Rate (or such component thereof); or
c. a public statement or publication of information by or on behalf of the administrator of such Benchmark Rate (or the published component used in the calculation thereof) or the regulatory supervisor for the administrator of such Benchmark Rate (or such component thereof) announcing that all Available Tenors of such Benchmark Rate (or such component thereof) are not, or as of a specified future date will not be, representative or in compliance with or aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark Rate if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark Rate (or the published component used in the calculation thereof).
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).
“Benchmark Unavailability Period” means the period (if any) (a) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark Rate for all purposes hereunder in accordance with the section titled “Benchmark Replacement Setting” and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark Rate for all purposes hereunder in accordance with the section titled “Benchmark Replacement Setting.”
“Business Day” means a day other than (a) a Saturday or Sunday on which commercial banks are open for business in the State of New York and (b) a day on which the Securities Industry and Financial Markets Association (or any successor organization) recommends that the fixed income departments of its members be closed for the entire day for the purposes of trading in U.S. Government securities.
“C2FO Reduction” means, for each Early Payment, an amount equal to: (a) the approved amount (less any relevant credit notes applied, where relevant) confirmed by the Buyer multiplied by (b) 0.00% (unless Bank and/or C2FO notifies you of a different rate in writing), divided by (c) a 360 or 365 day year as is determined by Bank to be customary for the relevant currency in the local interbank market, multiplied by (d) the Tenor.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Tenor,” the timing, and frequency of determining rates and other technical, administrative or operational matters) that Bank decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by Bank in a manner substantially consistent with market practice (or, if Bank decides that adoption of any portion of such market practice is not administratively feasible or if Bank determines that no market practice for the administration of any such rate exists, in such other manner of administration as Bank decides is reasonably necessary in connection with the administration of these Terms).
“Discount” means, an amount equal to: (a) the approved amount (less any relevant credit notes applied, where relevant) confirmed by Buyer multiplied by (b) the Discount Rate, divided by (c) a 360 or 365 day year as is determined by Bank to be customary for the relevant currency in the local interbank market, multiplied by (d) the Tenor.
“Discount Rate” means, unless Bank and/or C2FO notifies you of a different rate in writing, a percentage, calculated as the sum of (a) the percentage interest using the relevant Benchmark Rate on the date of payment of Early Payment for the relevant Approved Currency, plus (b) a margin of [0.60[TJS1] ]%.
“HSBC Group” means HSBC Holdings plc and its subsidiaries and associate undertakings including any of their branches.
“Invoice Settlement Date” means the date (which may differ from the invoice due date) identified by Buyer (or determined using Buyer agreed parameters, based on criteria such as Buyer’s payment scheduling) as the date for settlement of the relevant approved amount if the relevant date identified is not a Business Day, then it shall be deemed to have been identified as the next following Business Day.
“Relevant Governmental Body” means the Federal Reserve Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board or the Federal Reserve Bank of New York, or any successor thereto.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“Tenor” means the number of days from the date of any Early Payment by Bank to Supplier to the Invoice Settlement Date (inclusive).
“Term SOFR” means the Term SOFR Reference Rate for a tenor comparable to the applicable Tenor on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Tenor, as such rate is published by the Term SOFR Administrator; provided, however, that is as of 5:00 p.m. (New York city time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day; provided, further, that if Term SOFR determined as provided above (including pursuant to the proviso above) shall ever be less than zero, then Term SOFR shall be deemed to be zero.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by Bank in its reasonable discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
Benchmark Replacement Setting
Notwithstanding anything to the contrary herein or in any other document related to these Terms, upon the occurrence of a Benchmark Transition Event, Bank may amend these Terms to replace the then-current Benchmark Rate with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. (New York City time) thirty (30) calendar days after the date notice of such Benchmark Replacement is provided to you without any amendment to these Terms or any other document related to these Terms or further action or consent by you. No replacement of a Benchmark Rate with a Benchmark Replacement pursuant to this section will occur prior to the applicable Benchmark Transition Start Date.
In connection with the implementation of a Benchmark Replacement, Bank will have the right to make Conforming Changes from time to time and notwithstanding anything to the contrary herein or in any other document related to these Terms, any amendments implementing such Conforming Changes will become effective without any further action or consent by you.
Bank will promptly notify you of (A) the implementation of any Benchmark Replacement and (B) the effectiveness of any Conforming Changes. Bank will promptly notify you of the removal or reinstatement of any tenor of a Benchmark Rate pursuant to clause (iv) below. Any determination, decision or election that may be made by Bank pursuant to this section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from you, except, in each case, as expressly required pursuant to this section.
Notwithstanding anything to the contrary herein or in any other document related to these Terms, at any time (including in connection with the implementation of a Benchmark Replacement), (A) if the then-current Benchmark Rate is a term rate (including the Term SOFR Reference Rate) and either (x) any tenor for such Benchmark Rate is not displayed on a screen or other information service that publishes such rate from time to time as selected by Bank in its reasonable discretion or (y) the regulatory supervisor for the administrator of such Benchmark Rate has provided a public statement or publication of information announcing that any tenor for such Benchmark Rate is or will be no longer representative, Bank may modify the definition of “Tenor” (or any similar or analogous definition) for any Benchmark Rate settings at or after such time to remove such unavailable or non-representative tenor and (B) if a tenor that was removed pursuant to clause (A) above either (x) is subsequently displayed on a screen or information service for a Benchmark Rate (including a Benchmark Replacement) or (y) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark Rate (including a Benchmark Replacement), then Bank may modify the definition of “Tenor” (or any similar or analogous definition) for all Benchmark Rate settings at or after such time to reinstate such previously removed tenor.
Upon your receipt of notice of the commencement of a Benchmark Unavailability Period, you may revoke any pending request for Early Payment in respect of an Approved Invoice.
Inability to Determine Rates
Subject to the section immediately above, if on or prior to the first day of any Tenor:
i. Bank determines that Term SOFR cannot be determined pursuant to the definition thereof, or
ii. Bank determines that for any reason in connection with any request for Early Payment that Term SOFR for any Tenor with respect to a proposed Early Payment in respect of Approved Invoices does not adequately and fairly reflect the cost to Bank of funding such Early Payment,
then Bank will so notify you. Upon notice thereof by Bank to you, Bank may determine a commercially reasonable alternative rate in lieu of Term SOFR giving due consideration to any recommendations by a Relevant Governmental Body or any evolving or then-prevailing convention for determining an alternative benchmark rate.
Buyer (or C2FO on its behalf) may provide details to Bank for Approved Invoices and advises the approved amount, Invoice Settlement Date and other additional information required to enable Bank, at its discretion, to effect Supplier’s requested Early Payment. Supplier will use C2FO’s Service to view Approved Invoices and make any request for Early Payment, or you may have confirmed to Bank and/or C2FO that you wish to always and automatically request Early Payments in respect of Approved Invoices.
If Bank elects (in its sole and absolute discretion) to make an Early Payment, it shall be the relevant approved amount less (i) the Discount, (ii) fees or deductions notified to Bank as being payable to C2FO and deductible from the approved amount (including the C2FO Reduction), (iii) the deductions set out below (if any) and (iv) any credit notes. If Bank elects not to make Early Payment, C2FO may notify Supplier. If Supplier is not paid by the Invoice Settlement Date or Supplier has queries relating to deductions and/or Invoice Settlement Dates, any such enquiries should be directed to Buyer or C2FO.
Fees and charges may change from time to time and will be notified to Supplier in writing (which may include by email) and are in addition to any fees and charges Supplier may incur with its account holding bank and/or intermediary banks.
Early Payments shall be made by Bank on a non-recourse basis. Upon any payment to you on account of an Approved Invoice (including, without limitation, any early payment net of any deductions set out in these Terms, and any credit notes, you shall mark its books and computer records accordingly to indicate “satisfaction in full” of such Approved Invoice.
Without affecting the C2FO Terms, Bank may terminate these Terms (or parts thereof) immediately on notice to you and C2FO (effective on receipt). Supplier may terminate these Terms upon written notice to and written acknowledgement from Bank and C2FO. Any rights and obligations that accrued before termination under these Terms will survive and all Early Payments prior to termination will continue to be governed by these Terms.
Supplier may not assign or transfer these Terms or the right to receive payment from Bank without the prior written consent of Bank. Bank may (i) assign or transfer any of its rights or obligations under these Terms, or (ii) enter into sub-participation arrangements and/or other risk mitigation in relation to these Terms, in each case with any person without Supplier consent.
Bank may make amendments to these Terms which will become effective immediately on notice to Supplier. Any such notice may be given by publishing such amendments on the C2FO Platform.
Supplier acknowledges, agrees, warrants and represents to Bank that:
- it is and will remain fully compliant with all laws and regulations applicable to it and no insolvency proceedings or process has been commenced by or against it;
- its involvement in the supply chain finance program with Buyer has not violated and shall not violate any applicable anti-bribery and corruption laws and regulations including, but not limited to any relevant provision in force in the jurisdiction where it and Bank are domiciled and operate;
- neither it nor any of its subsidiaries, directors, officers, employees, agents, or affiliates is an individual or entity (“Person”) that is, or is owned or controlled by Persons that are subject of any Sanctions or located, organized or resident in a Sanctioned Jurisdiction;
- it will not, directly or indirectly, use any benefit derived from the supply chain finance program to support any activities or business of or with any Sanctioned Person, or in any Sanctioned Jurisdiction; or in any other manner that would result in a violation of Sanctions by any Person;
- it confirms compliance and will comply in all material respects with foreign and domestic laws and regulations relating to Sanctions, anti-money laundering, export controls and any required import or export licenses, pertaining to each jurisdiction in which it operates and to each Approved Invoice, and will promptly notify Bank of any circumstance in connection with an Approved Invoice that may relate to money laundering, terrorist financing, bribery, corruption, tax evasion or Sanctions;
- Bank shall be entitled to refuse, stop or cancel any Early Payment and/or take any action to protect Bank’s interest in the event that any representation or warranty given by Supplier is inaccurate or untrue;
- where it has confirmed an email address for receipt of encrypted emails from Bank, Bank may, at its discretion, send encrypted emails to Supplier with relevant payment information identifying Approved Invoices, approved amounts, date of payment and the correlating net amount paid (after fees and charges). Terms and conditions apply to the use of Bank’s encrypted emails solution, Securemail, which Supplier will need to agree separately in order to receive the emails. Bank shall not be liable to Supplier (or any third party, including Buyer) in any circumstance for any error or omission in any email it issues to Supplier;
- in the event that any payment made by Bank renders Supplier liable to any tax (including without limitation any value added, sales, withholding or other tax), levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) imposed by any government or other taxing authority) due or imposed in any jurisdiction, Bank shall not be liable in relation to, nor responsible for, any claim made by Supplier relating to its liability for such tax in any circumstances;
- it agrees that Bank may make any deduction on account of tax Bank is required to make by any local or foreign tax or regulatory authority from or in respect of any payment made to Supplier, or to another person at its request or instruction, in connection herewith and Bank may pay the amount deducted to the relevant tax or regulatory authority;
- it indemnifies Bank against any loss, damage, cost, expense or liability Bank incurs or suffers as a result of (i) any breach by Supplier of the Terms and (ii) any applicable tax being assessed on, payable by or claimed against Bank arising out of or in connection with these Terms and payments Bank makes to Supplier (excluding any relevant income tax imposed on Bank), including (but not limited to) any value added, sales, withholding, stamp duty, registration or other similar tax; Supplier must pay any amount it owes under this clause within five days of demand by Bank;
- no claim shall be made by Supplier or any of its officers, directors, employees, agents, representatives or advisers against any member of the HSBC Group or C2FO or any of their respective officers, directors, employees, agents, representatives or advisers for any special, indirect, punitive or consequential damages in respect of or arising from breach of contract or any other theory of liability relating to or connected herewith; all such claims are waived and released;
- you will promptly account to Bank on receipt of any relevant recoveries;
- no third party holds or will hold an interest (including, without limitation, any ownership or security interest) in Supplier invoices submitted to Buyer or debt represented thereby in a manner that would in any way restrict or limit the early payment of such invoice, net of any deductions and credit notes set out herein, constituting the “satisfaction-in-full” of such invoice in an enforceable manner binding on you and such third-party; and neither the entry into these Terms nor the payment or early payment of invoices in accordance herewith (net of any deductions set out herein and any credit notes) shall constitute a violation or breach of, or trigger any indemnity, accelerated payment obligation or other negative consequence under, any agreement with any such third-party nor interfere with any rights of any such third-party;
- all payments made by Bank shall be made based on the information provided to Bank by Buyer and C2FO; Bank shall be under no obligation to check the account details provided to it by Buyer and/or C2FO. To the extent that any issue arises related to the amount paid, set‑off, counterclaim, credit notes, deduction or withholding, it will be a matter for Supplier and Buyer to determine;
- Buyer intends to permit C2FO to be able to collect the C2FO Reduction in respect of each Early Payment, and by way of arrangements with Bank the C2FO Reduction will be deducted from the relevant approved amount before any Early Payment by Bank to Supplier. In this regard, Supplier confirms to Bank that:
- neither Buyer or C2FO has exerted improper pressure or used improper means to require or influence Supplier to agree to receiving Early Payments from Bank or to agree the C2FO Reduction; and
- it is aware and acknowledges that no service is provided by Bank (whether directly or indirectly) to Supplier in respect of the deduction of the C2FO Reduction to be borne by Supplier;
- it acknowledges and specifically consents to Bank (i) engaging with C2FO to exchange, process, transfer or disclose data (including personal data) and to share, store or transmit information (including personal data) for the purposes of exercising its rights and/or obligations under the Terms, and (iii) disclosing information (including personal data) to C2FO where necessary or desirable to give effect to the Terms;
- it acknowledges that Bank may, as necessary or appropriate to facilitate use of C2FO’s Service by Supplier and persons authorized by it, transfer and disclose relevant information (including personal data) globally, to C2FO and any member of the HSBC Group, and such recipient may also process, transfer and disclose such information for the same purpose;
- it shall ensure that every person or entity in respect of which personal data is provided by Supplier (or by anyone else on its behalf), or will be from time to time provided by Supplier, to Bank, C2FO or to another member of the HSBC Group has been notified of and agreed to the processing, disclosure and transfer of their information (including to or from C2FO) before their information is provided. Supplier shall at the same time advise them that they have rights of access to, and correction of, their personal data; Supplier acknowledges that Bank will use any information Supplier provides to Bank as explained in Bank’s privacy notice (references to customer therein are deemed to refer to Supplier where the context requires) and that it can find this at www.us.hsbc.com/online-privacy-statement/ or it can ask for a copy by writing to HSBC Bank USA, N.A., P.O. Box 2013, Buffalo, NY 14240.
- it acknowledges and agrees that, as regards processing of personal data, Bank acts as controller in respect of such processing, and it is not intended that Bank shall act as a processor in respect of any personal data;
- it acknowledges that C2FO is independent from Bank and nothing in these Terms shall constitute a partnership, joint venture or other form of association between C2FO and Bank. Bank assumes no liability or responsibility whatsoever relating to C2FO’s Service including, without limitation, in relation to (i) any unavailability of the Service for any reason, (ii) Supplier’s use of the Service, and (iii) any delay, malfunction or data error relating to the Service;
- it confirms that it has read and agreed to the C2FO’s Terms in respect of its Service; this includes, without limitation, Supplier’s agreement to any limitations of liability, disclaimers or other terms that limit Supplier’s rights in relation to C2FO; and
- it confirms it is a diverse supplier under the Buyer’s Supplier Inclusion (walmart.com) program (“Inclusion Program”) and agrees to comply with the terms thereof, including with respect to any registration requirements and keeping your diverse supplier certification up-to-date. Supplier also agrees that if its status as a diverse supplier has changed, Supplier will notify Buyer as soon as possible at SupplierInclusion@walmart.com (or as directed by Buyer). For purposes hereof, the term diverse supplier is defined by the Buyer to mean “a U.S. privately held company that is 51% owned and operated by a woman, minority, veteran, disable veteran, person with a disability or a member of the lesbian, gay, bisexual or transgender (LGBT) community.” If you have any question about the Inclusion Program, please visit https://corporate.walmart.com/suppliers or email SupplierInclusion@walmart.com.
The following disclosure provisions survive termination and are binding for 3 years after a valid termination:
These Terms are governed by the laws of the State of New York. You irrevocably submit to the non-exclusive jurisdiction of the courts of the State of New York and the courts of the United States of America for the Southern District of New York in respect of any proceedings which may be initiated in connection with these Terms.
In agreeing to these Terms, Supplier confirms that:
a. it has read or viewed and understood any relevant fact sheet, video or other materials provided to it as part of the onboarding process;
b. it has agreed to the C2FO Terms;
c. all relevant information about Supplier as provided to Buyer is accurate or Supplier has notified any relevant changes to Buyer;
d. it has read and understood the relevant deductions that will be made in respect of Approved Invoices prior to Early Payment;
e. the person agreeing to these Terms has the necessary authority and capacity to confirm acceptance of the Terms on Supplier’s behalf;
f. it has taken all necessary steps to authorize agreement to and performance of these Terms; and
g. its agreement to these Terms and the granting of such authorizations as may be necessary are in accordance with the applicable constitutional documents of Supplier’s organization.
In choosing to accept these Terms electronically and selecting the “I accept” option:
YOU HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE PARTIES HERETO ARISING OUT OF OR RELATING TO THESE TERMS AND RELATED NOTICE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Interest Rate Disclosure
The following is provided for general information only and you should conduct your own independent research and analysis regarding the risks involved in conjunction with your legal, tax and/or accountancy advisors. The statements below are not exhaustive. Whilst HSBC receives updates from regulators as to their expectations, there are events relevant to benchmark rates which are not yet known. Accordingly, HSBC cannot give any statement about the likelihood of any specific outcome or its potential impact on any transaction, nor is HSBC providing any advice or recommendation.
What is LIBOR? The London Interbank Offered Rate (“LIBOR”) is an interest rate benchmark often used, directly or indirectly, to determine the interest payable under banking products including to calculate relevant early payment discounts. In addition to LIBOR, calculation methodologies of some other benchmarks may be linked to LIBOR and these benchmarks may be directly or indirectly impacted as a consequence of LIBOR transition.
What’s changing? LIBOR is subject to national and international regulatory guidance and reform. Examples of recent regulatory and industry led guidance and proposals include:
- On 5 March 2021, the Financial Conduct Authority (FCA), the UK regulator of LIBOR , announced that all LIBOR settings for all currencies will either cease or no longer be representative immediately after (i) 31 December 2021, for GBP, Euro, Swiss Franc and Japanese Yen LIBOR settings in all tenors, and US Dollar LIBOR 1-week and 2-month settings; and (ii) 30 June 2023, for US Dollar Overnight, 1-month, 3-month, 6-month and 12-month settings.
- The FCA also stated it will consult in Q2 2021 on the publication of certain LIBOR settings on a ‘synthetic’ basis (a different calculation methodology) after the above dates to potentially support the transition of ‘tough legacy’ contracts (contracts that are expected to be particularly difficult to transition) in limited circumstances.
- UK regulators have made it clear that that all new issuance of GBP LIBOR referencing products that expire after the end of 2021 should cease by the end of March 2021.
- The Alternative Reference Rates Committee (ARRC) which is a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York to assist with a market transition from USD LIBOR to the Secured Overnight Financing Rate (SOFR) has, for US documentation, recommended that after 30 September 2020, no new USD LIBOR products maturing after 2021 should be issued. US financial regulator recommendations are to cease products using USD LIBOR as soon as practicable and in any event by the end of 2021.
- The methodology for the calculation of EURIBOR could in the future change which could result in EURIBOR being different than would have been the case if it were to be determined using its existing methodology. It is also possible in the future that EURIBOR may become unavailable. Fallback provisions are also being developed by the Working Group on Euro Risk-Free Rates for use in contracts referencing EURIBOR. Your product documents may require amendment to reflect any recommended fallback provisions.
- Financial regulatory authorities are encouraging the use of “Risk Free Rates” or “Near Risk-Free Rates” (RFRs) which have been developed as alternative interest rate benchmarks. RFRs are typically backward looking overnight rates based on actual transactions and reflect the average of the interest rates that certain financial institutions pay to borrow overnight on an unsecured basis from wholesale market participants (for unsecured RFRs, such as SONIA) or the average rate paid on secured overnight repurchase or “repo” transactions (for secured RFRs, such as SOFR). RFRs do not include or imply any credit or term premium of the type seen in LIBOR or EURIBOR; however, RFRs are not truly free of risk; RFR’s can rise or fall as a result of changing economic conditions and central bank policy decisions.
Why are we sending this to you? As you are in receipt of terms from us that use LIBOR and/or that use an RFR to calculate discounts, you should be aware of the potential impact of these changes. You may use this information alongside the other information published by regulators to assist you and your advisers in deciding whether a different payment solution is more appropriate.
What are the key differences? The RFR interest rate benchmark for US Dollars is SOFR. LIBOR is a ‘term rate’ which means it is published for different periods of time (e.g. 3 or 6 months) and is a ‘forward looking’ rate which means it is published at the beginning of the borrowing period and remains the same for that period. It is important to note:
- the manner of adoption, calculation and application of RFRs for early payment discounts may differ compared with the application, calculation and adoption of RFRs in other products, such as the bond and derivatives markets;
- for some settings and currencies, LIBOR may continue to be published on a synthetic and non-representative basis; however, such continuance, is expected to be used only for contracts unable to transition from LIBOR because they genuinely have no or inappropriate alternative and have no realistic ability to be renegotiated or amended;
- the adoption, calculation and application of a RFR could result in differences to the economics over the duration of the discounting and mean that amounts payable are lower or higher than using a LIBOR or other interest rate benchmark; you should ensure you speak to your advisers to understand the consequences of this;
- forward-looking SONIA term rates have been developed; the ARRC is seeking to develop forward looking SOFR term rates for US dollars, however this is subject to the development of a robust SOFR derivatives market and there is no indication of how extensive use of such rates will be;
- term RFRs are based on forward-looking derivatives (typically Swaps or Futures) on overnight RFRs and therefore include future rate expectations but not interbank credit risk; the quality and stability of a term RFR is a function of derivative market liquidity and therefore these rates are different to the RFRs themselves and pose additional risks in their use;
- forward-looking term RFRs may not be available in every currency, particularly those where there is no active and liquid derivatives market e.g. CHF SARON;
- using a RFR where interest is calculated using one calculation methodology (e.g. RFR compounded in arrears), could mean that amounts payable are lower or higher than using an alternative interest rate benchmark or a RFR calculated using a different methodology (e.g. forward looking term RFR);
- you may find that different products will use different methodologies and conventions for calculating interest e.g. a loan facility may use a compounding in arrears methodology whilst a trade facility may use a forward looking term or a simple overnight rate; you should consider the operational impacts this may have on you;
- RFR interest rate calculation conventions will likely require your internal treasury, accounting and payment systems to be enhanced in order for you to manage the servicing of these products in an accurate, efficient and timely manner;
- future changes to market practice or conventions relating to the use of RFRs could potentially be adverse to your interests, require you to make changes to the documentation you have executed with us or to other administrative and operational changes you have already made; these further changes could result in you incurring additional costs;
What’s the impact for you? It is possible that use of a RFR may result in changes to the early payment amounts payable. Those amounts might be lower or higher than would have been payable if LIBOR had applied. Where an RFR is used, fallback provisions will be included to address unavailability of an RFR as an interest rate benchmark. The fallback provision may vary by jurisdiction and may result in changes to the discount amounts, which may be higher or lower than would have been payable under the RFR.
If you are using a derivative product to hedge your early payments or for other purposes, the fallback interest rates that may apply may no longer match and could result in your position ceasing to be hedged appropriately by that product. Furthermore, in the event of a restructuring or termination of any associated hedging product(s) you have with HSBC or another hedging provider, a payment may be due from you to HSBC or that hedging provider. Such payment may be significant.
Where can I find further information? We are unable to provide specific advice or recommendations on this issue. We strongly recommend you seek guidance from your usual professional advisors if you have any questions. Further information is available at: www.business.hsbc.com/ibor.