Blog Post

Preparing Your Contracts for LIBOR: What You Need to Know Part 3

August 28, 2020

In part one of our series, we went into detail on what the LIBOR transitions means. In part two of our series, we walked you through a step by step process on how to prepare your contracts for the LIBOR transition. In our third and final part in our series, we will discuss some LIBOR transition tools that will be helpful as you go through the process.

Identify LIBOR transition tools and experts for support

With end-2021 right around the corner, you’ll want to take every advantage you can get. Many of the steps outlined in this guide and the further work of processing your contracts can be made easier with the right tools and experts. Exigent has worked with hundreds of clients on unprecedented legal challenges, and we know our way around the tools and techniques that it takes to navigate these uncharted waters. Here’s what you should look for.

Contract management/onboarding

Rather than creating a contract repository in a drive or a spreadsheet, using a CMS will set you up for success when processing your contracts for the LIBOR transition.

Not only will creating a contract repository in a CMS enable you to securely store your contracts and track their histories, the right CMS will also enable you to search by expiration dates, counterparties, clauses and provisions — a feature that will help immensely when searching for high-risk contracts.

Artificial intelligence/machine learning

While manual search is an option for organizations with fewer contracts, it’s not feasible for organizations with a high volume of contract data to review. Doing so may take a prohibitive amount of time and increases the chances that LIBOR-referencing contracts are missed. Each one of these missed or erroneous contracts act like ticking time bombs, liable to interfere with revenue and expose you to litigation.

When trained on the right set of data, artificial intelligence and machine learning (AI/ML) can identify different values within contracts and contextualize them as well. As an example, you could train an AI/ML solution to identify contracts with weak fallback language, or contracts whose underlying economics will change substantially when switching to an ARR.

Data capture capabilities

In order for AI/ML to work well, it needs high quality data. But that data can be difficult to capture, especially if you’re working with contracts that have been stored in a wide variety of formats. Capabilities like optical character recognition (OCR) and natural language processing (NLP) will be necessary in order to gather data from these sources to be processed by your AI/ML capabilities.

Robust NLP capabilities are a particularly critical aspect of any contract management solution. One of the foundational qualities that makes for a great legal mind is attention to language and linguistic precision — an NLP tool used in the legal space has to approach this attention to detail and understanding of context..

Reporting and analytics

If it’s worth doing, it’s worth measuring. Transitioning away from LIBOR is likely one of the biggest legal challenges your organization will face, and tackling it will take time. You’ll want to report on and measure your progress to stay on track.

Whichever tool you use for reporting and analytics, it should be able to provide you with critical insights, such as:

  • Accurate assessment, visualization and communicate of your exposure risk
  • The scope of contracts requiring remediation
  • The degree to which transitioning will change contract economics
  • Your overall progress towards transition

Having access to these insights will make managing your transition project significantly easier. You’ll be able to call in additional resources before they’re needed, and you’ll avoid an overworked (and more error-prone) team.

Expert support

Much of your LIBOR transition activities will lean on the skills of your organization’s general counsels and financial experts. However, making the most of these tools and conducting your transition expediently and thoroughly will require additional support.

When building an AI model to assess your contracts, for instance, you’ll need to bring on data scientists to provide model training and maintenance. Integrating these tools into your existing systems will require the support of IT experts as well. These experts, however, aren’t typically found in most organizations’ legal departments; you’ll need to identify technical experts with the necessary legal background to carry out your transition project successfully.

Don’t shy away from asking for help

The LIBOR transition may seem like a beast, especially if your legal team already has their fill of daily duties and hasn’t had experience with the necessary tools. Luckily, it doesn’t have to be. Exigent can help.

Exigent’s approach incorporates legal professionals, technology and business expertise, all of which are necessary to start 2022 with a healthy contract portfolio. Our team of over 400 attorneys, business analysts, developers and consultants is available to support general counsels across the globe, including the US, Canada, UK, Australia, and South Africa.

The LIBOR transition is an unprecedented event that will challenge legal teams in new ways — consulting with Exigent gives you access to the novel legal mindset necessary to tackle this challenge. Don’t hesitate to speak with one of our experts about how we can help.