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Club Level Feature – American Airlines

The Year of PHL for American Airlines

We started 2018 by sharing memorable moments with our partners at the airport and with our city leaders. As we sent fans to Minneapolis in style to cheer on our World Champion Eagles, we also engaged City Council in the fun with our rally towels that were waived in excitement while councilmembers sang “Fly Eagles Fly.”  Additionally, we experienced a humbling moment at the start of the year by reaching a milestone with our PHL cargo team.  By January, they had carried more than two million pounds of critical supplies to Puerto Rico for hurricane relief efforts – the most throughout our American network in the northeast corridor.

These early achievements and impactful benchmarks reinforce why 2018 is the year of PHL for American Airlines. We have so many exciting initiatives that will continue to reaffirm our status as both American’s transatlantic gateway and Philly’s Hometown Airline.

Starting this spring and summer, we will have 11 new routes—three international and eight domestic — that will connect people to the Philadelphia region and beyond. Our new international routes include: Budapest, Hungary; Prague, Czech Republic; and Mexico City, Mexico. Our new domestic routes include: San Antonio, TX; New York, NY; Des Moines, IA; Madison, WI; Omaha, NE; Fort Wayne, IN; Oklahoma City, OK; and Pensacola, FL.  Additionally, we resumed our service to Zürich, Switzerland on March 25.

As we continue to add more nonstop destinations to strengthen our position as American’s transatlantic gateway, we will broaden our regional economic impact and help make the Greater Philadelphia region an even more vibrant place to visit, live and work.

Whether it is above or below the wing, one of our top priorities is to identify ways to improve work environments for our 8,000-plus hardworking PHL team members. This year, we are making culture a competitive advantage. We are refreshing workspaces and meeting rooms and providing the tools and training our work groups require. More importantly, we are supporting team members on their initiatives that strengthen our diversity inclusion and cultural awareness.  In January, our newly formed Latin Diversity Network (LDN), one of American’s many Employee Resource Groups, flew to Puerto Rico to distribute over 200 toys which they collected from PHL team members.  The PHL LDN is also providing Spanish lessons to our team members to help them learn the airport lingo and better assist travelers.

We aim to give our team members everything they need to succeed, as they are our most important assets. As such, we look forward to continuing to work with our public and private partners to make PHL and the Greater Philadelphia Region an attractive place for residents and visitors alike.

We welcomed Folasade (Sade) A. Olanipekun-Lewis in February to our PHL team as the new Regional Director for Government and Airport Affairs. Sade joins us from the Philadelphia Division of Aviation, where she served as Chief Administrative Officer.  Before that, Sade worked as the Deputy Commerce Director for Finance and Administration for the City of Philadelphia, and as the Chief Financial Officer for City Council.

In her new role, Sade will help advance American Airlines’ regional legislative issues. She will also be responsible for real estate matters at the Hub and station levels that support operational activities.

We’re excited to have Sade with us, and her experience in aviation and the public sector will be paramount as we continue to forge the necessary relationships to position PHL as the premier airport in the northeast corridor.

Sincerely,

Olympia Colasante, Vice President – PHL

CLICK THE BELOW LINKS FOR A SNAPSHOT OF AMERICAN IN PHILADELPHIA AND AMERICA IN LONDON HEATHROW


Human Interest Feature

Trade, Investment, & Policy Thought Leadership
By Caroline Willems, BABCPHL Coordinator and Junior at Temple University, Fox School of Business

The British American Business Council of Greater Philadelphia (BABCPHL) provides our members with the most current and useful information regarding US/UK trade, investment and policy matters. We are able to provide this information because of our dedicated parent organization, BritishAmerican Business (BAB). The BABCPHL is one of 22 chapters throughout the world based in major cities. One advantage of being a part of this group is UK/US trade and investment information we can share with our members. This keeps our regional members up to date with the latest data regarding US/UK business.

Every month, BAB releases a Trade & Investment Update. Each update contains different subjects about what is currently happening in the UK and often includes sections on US/UK import/export, news, and upcoming events. In addition to policy updates, BAB releases current information about Brexit. In fact, BAB maintains an updated timeline with more than 20 articles and news sources. The data includes fact sheets, press releases from government officials, and roundtable events to keep members up-to-date on what’s occurring during the year throughout the globe. BAB releases their largest publication, the BritishAmerican Business Policy Agenda each spring.

BAB produces their yearly Policy Agenda as a benchmark for transatlantic economic relations. On Thursday March 1, they released the 2018 Policy Update. This 2018 edition focuses on Strength and Opportunity in a Time of Change. The Policy Agenda includes topics regarding trade and investment, Brexit, tax, and data/cybersecurity. The Agenda can be requested in hardcopy, however for immediate access you can find it by clicking here.

BAB has their own in-house resources and analysts, however, they also consult outside sources as well to help provide accurate and widespread information. Recently, BAB consulted the United States Trade Representative to deliver Doing Business in the US and UK. The document was developed after the third meeting with the US/UK Trade and Investment Working Group Meeting, which is a “formal exchange between Governments meant to explore the future US/UK trade and investment relationship post-Brexit – and is meant to discuss ways to deepen trade and investment.” The resource gives advice to small and medium sized enterprises (SMEs) about how to succeed in US/UK trade. BAB partnered with the UK Embassy in Washington to deliver Across the Pond – a relatively new, two-part success-story series. Released in July 2018, part one discusses American trade and investment success stories in the UK. Part two, recently released in February 2018, discusses British trade and investment success stories in the US. Across the Pond spread rapidly on Instagram and Twitter using the #AcrossThePond tagline.

The BABCPHL relies on the dedication and efforts put forth by the parent organization. The Policy Agenda as well as the other research helps inform our members and guide event topics. Sharing the useful information with our members ensures their continued success in the transatlantic marketplace. All trade and investment, Brexit, policy updates, and the Policy Agenda are housed on our BABCPHL website under Trade, Investment & Policy News. Click here to access valuable information.


New Members

Corporate Member:

Reed & MacKay
Amanda McCarthy
One South Penn Square
Suite 701
Philadelphia, PA 19107
P: 215-845-5531
E: amandamccarthy@reedmackay.com

Established as a family business over 50 years ago, Reed & Mackay are today globally recognized as business travel experts. Born from close working relationships within the financial, legal and insurance industries, our commitment to our clients and a love of what we do inspire us to deliver extraordinary travel management.

Reed & Mackay delivers corporate travel management for professionals with exacting needs. We combine inspired service with state-of-the-art technology to create a level of travel management like no other and deliver value you might not believe possible.

www.reedmackay.com

Arts, Educational and Charitable Organization:

University of Delaware
Dean’s Office
102 Du Pont Hall
Newark, DE 19716
P: 302-831-2401
E: engr-contacts@udel.edu
www.engr.udel.edu

The University of Delaware (UD) has a tradition of excellence, from tracing its origins to the founding of Alison’s academy in 1743, to the research-intensive, technologically advanced institution of today. UD offers a broad range of degree programs in its seven colleges.

The College of Engineering is home to seven academic departments and three degree programs devoted to building a community of problem-solvers focused on challenges associated with sustainability, energy, health care and the environment.

Our internationally recognized faculty includes 33 named professors, six National Academy of Engineering members, 51 NSF and DOD faculty career and young investigator award winners, and 17 University teaching award recipients. World-renowned initiatives led by college faculty include 13 college-based research centers and eight university-based research centers, all of which provide a fertile training ground for future engineers.

www.engr.udel.edu


President’s Letter

Dear BABCPHL Members and Friends,

As our fiscal year draws to a close I reflect upon our successes during the past twelve months, and look toward planning our future. At this time we conduct member outreach to receive updated information for our members’ only hard copy and new this year, online membership directories.  It is our job to help BABCPHL members promote their business services and products, make valuable connections, and learn timely information about transatlantic business issues.

We are also in the final stages of planning our last few events of the fiscal year while simultaneously strategizing about our line-up of programs that will occur from September 2018 through June 2019. We welcome your input!  Please contact us at babc@babcphl.com if you have a topic in mind, and share your ideas.

Lastly, we hope you will join us for our last three events of our “busy season” – The Future is Now, Where Are You?, a discussion about the workplace of the future, Britain Unites – Bridging Connections across the LGBT Community, and the Annual Transatlantic Business Conference.  Did you know we are one of 22 Chapters located throughout major business centers in the US, the UK and Canada?  Each year a different Chapter presents the Transatlantic Conference.  Chicago hosted last year, and Birmingham is hosting the 2018 session.  Please read through this newsletter for detailed information and links to our upcoming programs.  We look forward to seeing you.

Sincerely,

Michael J. Pedrick

President, British American Business Council of Greater Philadelphia


New Members

Corporate Member:

1776 / Benjamin’s Desk
Anthony Maher
1701 Walnut Street
Philadelphia, PA 19103
P: 609-374-4552
E: anthony@benjaminsdesk.com

Born in Philadelphia, Benjamin’s Desk is a next-generation business incubation engine. On October 16, 2017 Benjamin’s Desk merged with globally known Incubator, 1776. 1776 is the Northeast corridor’s largest network of entrepreneurial incubators with 11 campuses in 4 states and the District of Columbia. We are a next-generation incubator serving a community of bold entrepreneurs and companies impacting their ecosystems. For more information, please visit: www.1776.vc or follow us on Twitter @1776.

https://benjaminsdesk.com/

Educational, Arts, & Charitable Institution Member:

Drexel University
James Rinier
Assistant Clinical Professor of Accounting
3141 Chestnut Street
Philadelphia, PA 19104
P: 215-571-3640
E: jwr29@drexel.edu

Drexel University is a private institution that was founded in 1891, based in Philadelphia, Pennsylvania and has been a pioneer in cooperative education since 1919 – operating one of the largest cooperative education programs in the nation. Over 1,650 business, industrial, governmental, and other institutions “cooperate” with Drexel in offering students the opportunity to acquire practical experience in employment related to college studies. Drexel students also have the opportunity to explore research, national and international co-op experiences.  Drexel University is ranked #94 in the 2018 U.S. News and World Report’s category, “Best Colleges in National Universities.”

Drexel brings an international dimension to University life through our academic programs, study and cooperative education abroad, major research projects, global classrooms, conferences, and cultural events. These initiatives instill an awareness of today’s global challenges and opportunities in science and technology, politics and economics, and society and culture.

http://drexel.edu/

Individual Member:

Tom Koenig
Fresh Tracks
32 South Cricket Terrace
Ardmore, PA 19003
P: 857-523-5168
E: tom@freshtracks.xyz


Human Interest Feature

CREATIVE & PERFORMING ARTS – BABCPHL Members Showcase UK Culture
By Caroline Willems, BABCPHL Coordinator and Junior at Temple University, Fox School of Business

This winter and spring, the BABCPHL will be especially involved with our creative and performing arts members. Throughout the next few months, we will partner with Inis Nua, the Pennsylvania Academy of Fine Arts, the Philadelphia Orchestra, and Tiny Dynamite to deliver events that are sure to enrich and entertain you. Each organization contributes to the Philadelphia region by hosting unique cultural events and opportunities for the community. These groups provide historic and current projects linking the US and the UK.

Inis Nua Theatre Company is a theatre company that connects the US and UK by performing British contemporary, provocative plays in Center City, Philadelphia. These plays demonstrate the modern culture of Ireland, Wales, Scotland and England while being performed in the US. Inis Nua translates from Gaelic to mean new island. Inis Nua performed its first play in 2004 and has continued to grow each year since, showing 13 American premieres. Inis Nua distinguishes itself by taking new plays and combining the culture and traditions of Europe with modern and contemporary ideas. The company specializes in contemporary plays; reading series’; and “Pop Up Play in a Pub,” an exciting evening of Irish pie, beer, and a play in a pub. This year, the BABCPHL and Inis Nua are partnering for a special “Theatre Night” on February 22, 2018. Alan Harris’ production of Love, Lies & Taxidermy is a romantic comedy about growing up in small town Wales. The event will include a viewing of the play with food and drink. Afterward, the playwright will host a discussion. Click here to register.

The Pennsylvania Academy of Fine Arts (PAFA) is internationally known for their collection of sculptures, painting, and works on paper. PAFA is also an exclusive art school. PAFA aims to “promote the transformative power of art and art making.” This spring, artist and Philadelphia-native Benjamin West is being honored for forming connections between PAFA and the Royal Academy of Arts. West traveled to London at the age of 21 to study painting. While in England, he achieved many accomplishments including being a founding father and the second president of the Royal Academy of Arts as well as being the court painter to George III. PAFA was founded in 1805 during which time West was the first Honorary Academician of the museum. To honor West’s contribution to education and art, the museum is exploring his impact on PAFA and RA. This spring, PAFA will be celebrating the 250th anniversary of the founding of the Royal Academy of Fine Arts (RA) with art influenced by West. The exhibit will feature more than 60 pieces and explore eighteenth and nineteenth century artwork. Click here for more information about the exhibit.

The Philadelphia Orchestra is one of the most renowned orchestras in the world. Yannick Nézet-Séguin who serves as the eighth music director was appointed in the 2012 season and continues to conduct this season. The Orchestra is “committed to excellence, innovation, and creativity, onstage and off, and serves its many communities at home and abroad by performing music, encouraging music-making, and improving the quality of life.” This season, the Orchestra is bringing British music to the United States for a very special British themed three week concert series. The concerts will feature several composures including Handel, Britten, Bruch and Mendelssohn. To celebrate the completion of the series, the Orchestra will conclude with a performance of Haydn’s Symphony No. 104. On January 18, 2018 we are partnering with the Philadelphia Orchestra to provide members and friends with the exclusive opportunity to enjoy a “British Isles” concert series featuring British composers and music. This special event will also include a behind the scenes tour of the Kimmel Center, a meet and greet with musicians, and VIP seating for the performance. Click here to register.

Tiny Dynamite is a Philadelphia-based theatre company specializing in British plays. The company was founded in 2008 and performed its first play in February 2009. The goal of the organization is to give artists, performers, and community members a new way to create, perform, and embrace British-themed plays. Tiny Dynamite is recognized for their “A Play, A Pie & A Pint” (PPP) signature evenings. PPP started in 2004 in Scotland to attract a broader audience to support writers and actors. Tickets are less expensive and the shows are usually performed in the off-hours. Located inside a Philadelphia pub, the evening begins with cabaret seating where guests are able to socialize, connect, and enjoy live music before the play begins. The play runs about an hour long, during which time pizza and beer (or nonalcoholic alternatives) are served while guests enjoy the play. After the production, there is active dialogue between the artists and guests. The event is a “brilliantly casual” evening where guests can relax and enjoy a play, a pie, and a pint. Coincidently, Inis Nua has performed several plays with Tiny Dynamite during the PPP evenings. The companies often join together to create a unique European evening for the community. Click here for more information.

The BABCPHL would like to thank Inis Nua, the Pennsylvania Academy of Fine Arts, the Philadelphia Orchestra and Tiny Dynamite for partnering with us to deliver outstanding UK cultural events for our members and friends. These organizations are dedicated to using art, plays, and music to connect us to the rest of the world. They provide education about the UK through exciting, sensory driven programs. They also examine and inform the Philadelphia community about UK traditions and culture while comparing it to modern and relevant ideas in the US. These organizations must be applauded for providing countless charitable hours to help Philadelphia and the Delaware Valley citizens become more involved in the arts.


Club Level Feature

TD Securities
Libor: An Inconvenient Truth

In recent months the future of Libor has been the subject of intense debate. While the topic has been intermittently discussed since the financial crisis, when it became clear that Libor fixings were not in line with bank funding conditions, the debate has sharply intensified in recent months. July remarks by Andrew Bailey of the Financial Conduct Authority (FCA) — the regulator of Libor — jolted the market and spurred many participants into taking the transition away from Libor more seriously.

Libor is a public good…until 2021
The FCA has regulated Libor since 2013 and has made significant improvements to the rate through its administrator, ICE Benchmark Administration (IBA). IBA and the twenty panel banks that submit contributions have introduced changes in the quality of governance around submissions, aiming to anchor submissions to transactions. However the underlying market that Libor seeks to measure — the market for unsecured wholesale term lending to banks — is no longer active. According to ICE, fewer than 30% of USD 3m Libor submissions are based on transactions.
Meanwhile, many banks reportedly wished to withdraw from being a Libor submitter. Such a move would severely weaken the representativeness and robustness of the rate, potentially creating a domino effect that leads more banks to leave the panel. UK and European legislation only gives regulators limited power to compel banks to continue submitting to Libor. In the case of the European Benchmark Regulation, the “compelling power” is only one to two years. However, FCA’s Bailey and Fed’s Powell have suggested that banks have volunteered to stay on as submitters until 2021, giving the industry time to transition to a new benchmark.

What happens after 2021?
Part of the reason that the 2021 deadline was set is that the FCA believes work on a transition is unlikely to begin in earnest if market participants assume that Libor will last indefinitely. The fate of Libor after the end of 2021 is up to the IBA and the panel banks. They could continue to produce the rate, but because the FCA cannot oblige panel banks to stay, the robustness of Libor could deteriorate.
Global regulators have meanwhile blessed a number of alternative benchmark rates. All of the rates chosen globally to replace Libor have the benefit of being anchored in much more active markets than term Libor, involving little expert judgement. Additionally, in order to resolve the issue of which members to put on a rate-setting panel, these alternative rates use data from all relevant market participants.

SOFR So Good
The NY Fed is expected to release the SOFR rate in Q2 2018 along with two other rates based upon trade-level data from various segments of the repo market. Fed Chair Nominee Powell blessed SOFR in a recent conference, noting that, “The alternative reference rate needs to be able to stand the weight of having trillions of dollars written on it, and the ARRC has definitely met this standard in choosing SOFR.” The transactions underlying SOFR total nearly $700bn/day — much larger than the volumes in overnight unsecured markets and even larger than Treasury bill trading volumes. Powell’s endorsement of SOFR is the first time that a US regulator has been so explicit about the move away from the current Libor benchmark. Note that an estimated $160tn of contracts are linked to Libor and 90% of the that is linked to USD Libor. In August the Fed Board invited public comment about the plan for producing these rates.

These rates will improve transparency into the repo market by increasing the amount and quality of information available about the market for overnight Treasury repo. The rates will be volatile by construction, but given how many transactions these rates incorporate, it will be difficult for any one market participant to influence the rate. The tri-party rate will effectively be the offer side of the market and will be less volatile.

How is SOFR calculated?
The NY Fed proposes using a volume-weighted median as the central tendency measure for SOFR, which would be consistent with the methodology used for the Effective Federal Funds Rate (EFFR) and Overnight Bank Funding Rate (OBFR). In the event of an even number of transactions in the data set, the median would be considered to be the higher of the two numbers (i.e., it would be rounded up). There is a case to be made for a volume-weighted average (geometric or arithmetic mean) rather than a median since SOFR might have a bimodal distribution. One peak would represent relatively low tri-party rates and a second peak would reflect GCF and DVP GC transactions. The median of a bimodal distribution could be more volatile from day-to-day than a traditional volume-weighted arithmetic average if the valley between the two peaks is flat and low. Depending on the shape of the distribution, small changes in the relative volumes of the two peaks can result in significant shifts in the median rate.

All repo transactions that are initiated by a collateral borrower that requires a specific issue tend to trade below the GC repo rate. However, some form of filtering needs to be applied to the SOFR rate to remove transactions that are “special”. Simply removing transactions based on recent issues keeps other issues that may be trading special in the calculation. It would also exclude those on-the-run issues that may not be trading special. It is difficult to know the exact level of filtering required.

How does SOFR compare with other rates?
There are a few key features that distinguish SOFR from other rates:
Overnight: SOFR and EFFR are overnight rates, while Libor has term rates.

Secured: SOFR is a secured rate and therefore incorporates the cost of balance sheet while EFFR and Libor are unsecured.

Risk free: SOFR and EFFR are measures of the risk free rate, while Libor has some credit component since it measures bank funding costs.

Arrears: SOFR and EFFR are rates where payment occurs in arrears versus Libor, where you can settle in advance.

The similarity between SOFR and EFFR makes it useful to compare the new rate to EFFR. The Fed has released SOFR data going back to August 2014 and since then, the 3-month geometric means of SOFR and EFFR have generally tracked closely. Over this period SOFR has averaged about 4bp below EFFR, which is sensible since SOFR is a secured rate and may incorporate some special transactions. The rate is more volatile during month- and quarter-ends, where balance sheet pressures tend to move SOFR above EFFR.

A brave new world with SOFR

Below we discuss the ARRC transition plan. However, we believe that ultimately it is the liquidity in SOFR-linked contracts that will drive the pace of transition. Since SOFR is an overnight rate, many market participants may need to build out the infrastructure of compounding a daily rate. SOFR-based swaps are also likely to be uncleared initially, while Libor-linked swaps are cleared. Regulators may need to incentivize investors to switch to SOFR for new swaps entered into before 2021.

Another key issue as the market transitions to SOFR is the inclusion of the new rate in the FASB hedge accounting standards. Current standards include the SIFMA Municipal Swap Rate, the US Treasury Rate, the Libor Swap Rate, and the Fed Funds Effective Swap Rate. Inclusion of the SOFR will help build liquidity in contracts referencing SOFR and ease the transition for many derivative counterparties.
The paced transition plan:

  •      H2 2018: Infrastructure for futures and/or OIS trading in the new rate is put in place.
  • By end 2018: Trading begins in futures and/or bilateral uncleared OIS that reference SOFR.
  • Q1 2019: Trading begins in cleared OIS that reference SOFR in the current (EFFR) PAI and discounting environment.
  • Q1 2020: CCPs begin allowing market participants a choice between clearing new or modified swap contracts (swaps paying floating legs benchmarked to EFFR, Libor, and SOFR) into the current PAI/discounting environment or one that uses SOFR for PAI and discounting.
  • Q2 2021: CCPs no longer accept new swap contracts for clearing with EFFR as PAI and discounting except for the purpose of closing out or reducing outstanding risk in legacy contracts that use EFFR as PAI and the discount rate. Existing contracts using EFFR as PAI and the discount rate continue to exist in the same pool, but would roll off over time as they mature or are closed out.
  • By end 2021: Creation of a term reference rate based on SOFR-derivatives markets once liquidity has developed sufficiently to produce a robust rate.

The legacy problem
The FSB’s Market Participants Group (MPG) estimates the notional volume of outstanding financial products referencing USD Libor at more than $160tn. USD-denominated interest rate swaps represent approximately 90% of this outstanding gross notional volume. In terms of other USD-denominated products, the MPG estimates that USD Libor is used as the reference rate in 97% of syndicated loans, 84% of floating/variable rate notes and 71% of collateralized loan obligations. A transition for all of these contracts and products will be a complicated task to say the least. The key question for the transition is whether the industry needs to:

  •  Amend contracts to reference an alternative rate, or
  •  Amend the definition of Libor through the fallback protocol to replace the current methodology with alternative reference rates. This could be done by developing a spread, which could be added to the base of the risk free rates.

By March 2018 the International Swaps and Derivatives Association (ISDA) plans to draft a report that includes a survey for the users of Libor (derivatives, securities, loans, MBS), identifying issues with the transition in existing and new contracts, and recommendations.

ISDA Triggers: What determines that Libor doesn’t exist?
The first question is what determines that an investor has to find a replacement for Libor in an existing contract. If all panel banks stop submitting Libor, it would be an obvious trigger. But it becomes more difficult if a few banks drop from the panel. What determines that the panel may have “degraded” is a very subjective issue. Currently, the ISDA trigger is a public statement by the supervisor (in this case the FCA) about an insolvency of the relevant administrator (in this case ICE) or that Libor has been permanently or indefinitely discontinued or that it may no longer be used. Another ISDA trigger is a public statement by the administrator that it will cease publishing Libor.

ISDA fallback: What should replace Libor in a contract?
Current ISDA fallback protocol is meant for a temporary disruption for Libor. Many contracts allow the counterparty to call up 3 banks in London and obtain an average quote. However, in a situation when banks have stopped submitted Libor, this does not seem like a feasible alternative. Thus more work needs to be done on a permanent solution for a time when Libor may not exist. ISDA has already confirmed it is willing to develop a protocol that would allow market participants to update existing documents to insert a fallback rate should Libor cease to be published after 2021, or possibly sooner in the case of Euribor.
Under the ARRC transition plan, counterparties to Libor-linked swaps would amend their documentation to reference an alternative rate well before Libor might cease. Moving from Libor to SOFR would create a valuation change given that SOFR is lower than the Libor rate. The aim is to find the amount of compensation that each side will be willing to pay and receive to make the switch. That amount could be thought of as a spread which could be added to SOFR, which would replace Libor in an existing spread.

How do you compute and administer the spread?
There are two approaches are currently being discussed to compute the spread: a historical approach and an auction approach. A historical approach would freeze the Libor-SOFR basis on the day the benchmark is ceased while the latter would involve determining the Libor-SOFR basis each day via an auction process.

The cash problem
So far we have discussed the issues for the transition away from Libor for derivatives. However, there are many cash products that are linked to Libor, with a many of these products possessing terms past 2021. The ARRC has expanded its work to incorporate the cash transition plan, resulting in discussions about creating a term reference rate. That term reference rate would have to be built by first developing futures and OIS markets that reference SOFR. It will likely not be as robust as SOFR itself, and so derivatives transactions will almost certainly need to be based on the overnight rate. However, a term reference rate could conceivably be used in some loan or other contracts that currently reference Libor.
Below we discuss some of the current fallback issues across different products. We would expect new products that mature beyond 2021 to have a more robust fallback as a world without Libor looks much more likely now.

Current fallback language in Libor-linked cash products
 Mortgages and other consumer products: Typically the contract language in mortgages gives the noteholder the ultimate authority to name a successor rate if Libor was permanently discontinued. Other consumer loans may be more varied, but generally seem to have similar flexibility.

  • Floating rate notes: There are an estimated $1.5tn in outstanding Floating Rate Notes referencing USD Libor. However, 84% of these FRNs will mature by the end of 2021, and 92% by the end of 2023. Typical contract language would direct the calculation agent to first poll a sample of banks (similar to the ISDA fallback language) and then convert to fixed-rate at the last published value of Libor if quotes are not received. It would typically require unanimous consent of the noteholders to adjust these terms.
  • Securitizations: Approximately $1.8tn in outstanding securitizations reference USD Libor. Agency MBS allow Fannie Mae and Freddie Mac to name a successor rate if Libor was permanently discontinued, but typical contract language in other securitizations would require a poll of banks and then convert to fixed-rate at the last published value of Libor if quotes are not received. CLOs are typically called after an initial 1-2yr period, at which point fallback language could be amended.
  • Corporate Loans: Flow of Funds data estimate the level of nonfinancial corporate loans at $2.7tn (does not include committed but undrawn lines). A large share — $2.1tn — are syndicated loans (according to SNC data). Roughly 85% percent are floating rate, and a large share of those appear to reference Libor. The typical contract language appears to name the Prime Rate or the Effective Fed Funds Rate plus a spread as the fallback if Libor was discontinued. Note that bilateral loans can be renegotiated by the borrower and lender to amend this, while syndicated loans currently tend to require unanimous lender consent to amend these terms. However, syndicated loans are amended fairly frequently, so it is very likely that most or all of the outstanding stock of loans would be amended before the end of 2021. We expect that lenders will make sure that new and existing loan documents make sense in a world without Libor. Where possible, lenders and borrowers may look to adjust their credit agreement voting provisions so that any change to the rate benchmark will not require a 100% vote. In syndicated loan documentation, borrowers may want the selection of a replacement rate to require the approval of a majority of lenders, rather than requiring unanimous approval.
    Priya Misra, Gennadiy Goldberg

President’s Letter

Dear BABCPHL Members and Friends,

Happy New Year! I hope 2018 is off to a great start. I am pleased to report the BABCPHL closed the last quarter of the calendar year with educational forums featuring leading business executives who discussed timely topics such as cybersecurity and Brexit. In December we were joined by Mayor Kenney in welcoming the new Consul-General, Antony Phillipson to Philadelphia during our signature annual holiday luncheon.

During the coming weeks and months we are executing more than a half dozen programs related to pressing global business matters; young tech entrepreneurs; and UK cultural events throughout our region. While the majority of our programs are business oriented, we offer British culture and entertainment related activities as well. All BABCPHL events are valuable opportunities to meet members, network across sectors, and showcase your business or service offerings.

It is our job to promote the trade and investment relationship between the UK and the Greater Philadelphia region. Our Chapter’s jurisdiction includes Southeastern Pennsylvania, Southern New Jersey, and the State of Delaware. Within this geography we are honored to work closely and to collaborate with regional and UK government officials, and other international institutions.

As you read through this newsletter you will find a recap of our recent past activities and upcoming events in which our members may participate, as well as feature articles published by or about our members. We look forward to seeing and hearing from you often this calendar year.

Sincerely,

Michael J. Pedrick
President, British American Business Council of Greater Philadelphia


Club Level Feature: Ernst & Young

EY collaborates with Microsoft on a new analytics solution to help organizations enhance workforce productivity and well-being

London, 12 July 2017

EY announced this summer that it is collaborating with Microsoft to provide a new analytics solution called Workplace Insights, which can help organizations enhance their productivity and the well-being of their work forces by uncovering data patterns in digital communication and employee collaboration in today’s complex, digitally-driven business environment.

Workplace Insights combines the Microsoft Workplace Analytics platform with EY services consulting and data analytics experience to help organizations reach informed business decisions that can improve performance. The platform analyzes an organization’s existing communication and collaboration patterns – such as email and calendar metadata – and incorporates data from other enterprise systems to show how teams spend their time, collaborate and engage, both internally and externally, such as with suppliers or clients. EY interprets the outputs to help develop actionable insights and recommendations that organizations can use to support the execution of their strategic and operational priorities. The capability can be applied across business scenarios that include organizational transformation, mergers and acquisitions and real estate planning. Workplace Insights helps organizations use data to make informed decisions in these example areas:

  • Organizational transformations: Helps targeted and efficient change management and transformation efforts by measuring and monitoring the real-time effectiveness of change programs and engagement.
  • Mergers and acquisitions: Supports integration, benefits realization and retention of critical talent by identifying degree of group collaboration and communication patterns across formerly disparate teams or organizations. This analysis can be used as forward-looking indicators of success or flag potential risks.
  • Organization design: Helps to provide organizations with a quantitative look at collaboration and communication habits, new activity patterns and make more informed decisions around changes in roles and responsibilities based on these new data sets.
  • Workspace and real estate planning: Allows planners to improve productivity and enhance employee engagement and collaboration by understanding where, when and how groups work. Work location and commute time information can be loaded into the platform, which supports EY in providing insights around capacity, design transformations and broader real estate planning activities.

Mike Bertolino, EY Global People Advisory Services (PAS) leader, says:

“In today’s fast-paced and highly competitive environment, employers continue to face increasing operational pressures, especially as the global workforce evolves. This collaboration with Microsoft combines data science with a focus on the value that people bring to their work. Workplace Insights helps companies to better understand the effectiveness of their people, so they can identify opportunities for change and help support their people to be the most productive and collaborative as possible.”

Ryan Fuller, General Manager, Microsoft MyAnalytics & Workplace Analytics, Microsoft, says:

“Working with EY to leverage the organization’s in-depth experience in workforce transformation and change management across multiple industries, we anticipate that we will increase our engagement with organizations around the world. In today’s disruptive and highly competitive environment, it is more important than ever that companies take full advantage of the data they have at their disposal and understand what drives value, so they can make better-informed decisions.”

Together, EY member firms and Microsoft deployed Workplace Insights to help a global professional services firm’s IT organization in redesigning process and structure to increase customer centricity and decrease cost. The company leveraged the data to improve collaboration between groups and identify optimal reporting relationships and organizational structures, which helped measurably improve product development, margin and speed-to-market.

Greg Cudahy, EY Global Lead, Technology, Media & Entertainment, and Telecommunications, says:

“Particularly for large transformations that can drive hundreds of millions of dollars in value, organizations need to be sure they can pinpoint their most collaborative and productive teams and facilities. Workplace Insights provides near-real-time, quantifiable feedback on what’s working and what is not, so organizations can quickly identify and leverage workforce opportunities. In addition, EY and Microsoft are committed to protecting clients’ and employees’ data privacy and confidentiality by aggregating and anonymizing data, while complying with increasingly varied and stringent data privacy regulations.”

The Workplace Insights solution is supported by more than 10,000 EY People Advisory Services practitioners globally. The solution can be integrated with the EY Organization Talent Hub (OTH), a tool built on the Microsoft Azure platform. OTH pulls an organization’s data into a secure environment, providing access to crucial statistics before and after the restructuring occurs. It offers the granularity necessary for planning the new organization design and selecting and retaining talent, while tracking workforce movements needed for day-to-day operations.


President’s Letter

Dear BABCPHL Members and Friends,

I am honored to officially communicate with you for the first time as President of the BABCPHL. While I have served in various Executive Committee roles and on the Board of Directors for more than a decade, I am pleased to assume this new leadership position.

BABCPHL closed the books on an excellent fiscal year at the end of June. Our second quarter century of operations and success in the region is well underway. But the key to that continuing success is making sure the BABCPHL is providing value to you, its members. We want to hear from you! Please tell us how we can best serve you and the interests of your company. Is there a pressing issue or topic related to UK-business you would like us to present? Are you a member and would like an opportunity to participate more fully? Are you are not currently a member and might like to join but don’t know the next steps? Contact us with questions or comments: www.babcphl.com

While the summer is often a quiet time, the BABCPHL was very productive. We launched our new logo, published our annual membership directory, hosted a few programs, and planned our new fiscal year activities. Upcoming BABCPHL events include seminars about pertinent subjects such as cybersecurity and Brexit, and of course, our signature holiday program. Read on to learn more.

I look forward to working with you to promote the trade and commercial relationship between the Greater Philadelphia region and the UK.
Sincerely,

Michael J. Pedrick
President, British American Business Council of Greater Philadelphia

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The BABCPHL recognizes our Club Level Members:

  • Almac
  • American Airlines
  • Bartlett
  • Cigna
  • Deloitte
  • Drinker Biddle & Reath LLP
  • Duane Morris
  • HSBC
  • KPMG
  • McConnell Johnson Real Estate
  • Morgan Lewis
  • Law Firm of Pepper Hamilton
  • TD Bank
  • United Airlines
  • Virgin Atlantic