In this interview, Kam Mahil, Senior Director at LMA, speaks with: Neil Wadey, Group Head of Treasury at BAT; Anandita Khanna, Director, Leverage and Acquisition Finance at HSBC; and Greg Brown, Partner at Allen & Overy, on the BAT installation. British American Tobacco signs £6 billion SONIA and SOFR-related revolving credit facility The Group`s main banking facility is a £5.85 billion syndicated committed revolving credit facility, mainly used for liquidity purposes. It is guaranteed by British American Tobacco p.l.c. Barclays Bank and HSBC acted as joint coordinators of the Facility. Allen & Overy acted as legal advisor to the banks. The Allen & Overy team included Greg Brown, a London-based partner (pictured), Fiona FitzGerald, global head of banking know-how, and Dominique Crowley, a partner. These included New York partner Elizabeth Leckie and senior attorney Livia Talenti, as well as Amsterdam partner Femke Bierman, senior partner Karin Hoenson-van den Berg and paralegal Cobie Kuipers. The new facility consists of a £3 billion facility, $3 billion of $3 billion over 364 days and a £3 billion facility over five years and will be used primarily for supportive liquidity purposes. The documentation is based on BAT`s existing facility agreement, the risk-free provisions are based on the LMA`s “projects” and the SONIA and SOFR multi-currency provisions were developed by A&O in discussions with Barclays, HSBC, BAT (and its external legal counsel Herbert Smith Freehills) and other syndicated banks. The LMA list shows that there are a growing number of precedents for interest-based risk-free loan agreements in the market. One of the most recent took place on 14 September. October 2020 by Tesco PLC as a borrower (“Tesco Facility Agreement”). At the time of this announcement, this is the third publicly announced syndicated facility to refer to rfrs, the first two for Royal Dutch Shell plc and British American Tobacco PLC (the latter to be signed on March 12, 2020 and explored in more detail below (the “BAT Installation Agreement”)).
In this note, we examine the precedents and some of the practical solutions that these tools offer for the design of interest provisions in interest-based risk-free credit agreements. Neil Wadey, group head of Treasury at BAT, said: “I am delighted that BAT has been able to lead the transition to a post-LIBOR environment with this largely syndicated £6 billion facility. This transaction, supported by our banking group, has created new agreements for the SONIA and SOFR benchmarks and brought clarity and certainty to our relationship with the credit market. On March 12, 2020, British American Tobacco (“BAT”) announced that it had signed a new £6 billion multi-currency revolving credit facility with a consortium of 21 banks. Under the terms of the Facility, the LIBOR interest rates on the pound sterling and the US dollar will be replaced by SONIA and SOFR on the first anniversary of the date of signature or (if the termination of the Libor has not occurred) on a future date set by BAT, once the banking market is fully prepared for the transition to other risk-free interest rates. The facility will also be available for subscription in euros and euro draws will continue to be based on EURIBOR. As mentioned above, the BAT Facility Agreement contains references to the SOFR index. The Federal Reserve Bank of New York began publishing a SOFR index on March 2, 2020. The SOFR Index measures the cumulative impact of SOFR compound interest on an investment unit over time and is published on its website shortly after the publication of SOFR at 08:00 (Eastern Standard Time). The SOFR index uses a daily weekday compound interest rate determined by the SOFR publication schedule, and simple interest rates apply to each day that is not a business day at an interest rate equal to the SOFR value of the previous day. It goes without saying that the reference to an index in the facility agreement greatly simplifies the calculation of the compound interest rate.
However, a calculation of the composite SOFR still needs to be carried out in order to apply the index data to the relevant period. It should be noted that the Bat Facility agreement uses an approach similar to the pound sterling reference rate. The Bank of England began publishing the SONIA Index on August 3, 2020, and the METHODOLOGY of the SONIA Index is in line with the approach of the Federal Reserve Bank of New York. .
