This practice note examines recent market trends regarding medium-term note programs (MTN programs), providing an overview of the market in 2020 and 2021 with a focus on general deal structure and process, and disclosure trends. Financial service companies, such as bank holding companies, continued to use MTN programs as their vehicles for issuing large, underwritten offerings of notes as well as structured notes in 2020. The year 2020 saw a significant increase in the use of the secured overnight financing rate (SOFR) as a base rate replacing U.S. dollar LIBOR. In 2021, some issuers linked their floating rate notes to new rates designed to offer alternatives to SOFR, such as Ameribor and the Bloomberg Short-Term Bank Yield Index (BSBY), both of which have a credit element. The major change still to come in 2021 will be updating U.S. rates definitions in MTN programs in response to the new 2021 ISDA Definitions, which will come into effect on October 4, 2021.

For additional information on MTN programs, see MediumTerm Note (MTN) Programs and Top 10 Practice Tips: Medium-Term Notes.

Deal Structure and Process

MTN programs are designed to allow fast market access by frequent issuers without the burden of negotiating a suite of takedown documents for each issuance. At the launch of an MTN program, a set of deal documents are negotiated and executed: a distribution agreement (designed for continuous offerings, as opposed to an underwriting agreement negotiated for a specific offering), the issuer's existing debt indenture, and ancillary documents, such as a calculation agency agreement and an exchange rate agency agreement.

The offering documents for an MTN program will include a base prospectus with a general description of the issuer's debt securities that may be issued under the indenture, a more detailed prospectus supplement describing the notes to be issued under the MTN program, and free writing prospectuses and/or pricing supplements, each of which will include the specific details of each offering. The prospectus supplement will usually include a description of the issuer's fixed and floating rate notes, and the various underlying rates for floating rate notes (e.g., SOFR, the constant maturity swap rate (CMS), the Euro Interbank Offered Rate (EURIBOR), the federal funds rate, and others). During 2020, issuances of USD LIBOR floating rate notes became rarer, and many issuers dropped USD LIBOR and LIBOR provisions from their MTN program documents. Issuances of SOFR floating rate notes are becoming common. For further information, see Medium-Term Note (MTN) Program Takedowns.

Frequent issuers of structured notes may also have socalled product supplements that will describe particular products or structures. For example, an issuer may have a product supplement designed to work with its MTN program that will describe various features of structured notes linked to indices or exchange-traded funds (ETFs). Some issuers will have product supplements that just contain descriptions of a number of indices or exchangetraded funds. The use of product supplements makes it possible to shorten the free writing prospectus or pricing supplement for a particular deal, because much of the basic information about the note is contained in the product supplement, as is the full description of the underlying index or ETF.

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