LIBOR Transition Advisory Newsletter - January 2021

Happy new year! As we can look back on 2020, we see that, despite COVID-19, the transition project has made tremendous progress during what was a very difficult 12 months.

The ISDA protocol for derivatives has been released and guidance for the transition of other legacy products has been issued which will allow firms to move into a more active execution phase of the transition.

The regulators and the IBA have announced the consultation that will determine the final cessation date of LIBOR and that the cessation of some USD LIBOR tenors will be deferred until 2023.

Both markets and regulators have turned their focus to developing the markets and derivatives underpinning the risk-free rates (RFRs) as well as looking for solutions, both legislative and market driven, for the tough legacy issues that have been identified.

While a lot of work has been done in 2020, there is still a lot more to do in 2021, and, as ever, the clock is still ticking!

LIBOR Highlights

General News

Is LIBOR Still Going Away? – Recent Announcements Create Diverging Fates for Remaining Rates, from the Kroll team: Florian Nitschke, Marcus Morton, Jennifer Press

• Recently, the administrator of LIBOR, ICE Benchmark Administration (IBA), alongside U.S. and UK authorities, made a number of important announcements regarding the end-stage of the benchmark. The biggest surprise was the extension of the life of most USD LIBOR tenors for 18 months. This led some participants to question whether LIBOR here to stay. In this article, we look at the announcements in more detail and consider the likely future path for the five LIBOR currencies: USD, CHF, GBP, JPY and EUR. 

Pandemic Delays Market’s Shift From Libor, StanChart Says, Bloomberg  

• A conversation with Bloomberg News highlights the transition away from HIBOR to HONIA in the Hong Kong market and the approach by the Hong Kong Monetary Authority for both rates to coexist.

NB to Exclude Libor-based Notes From Eligible Repo Collateral, Reuters 

• The Swiss National Bank continues to implement measures to support the transition to SARON.

Regulatory Updates 

The Final Countdown – Completing Sterling Libor Transition by End-2021, Bank of England

• UK regulators reissued their expected timeline for 2021, emphasizing that they expect issuance of all GBP LIBOR linked product to have ceased by the end of Q3 2021 and that, subject to the current consultation, they expect GBP LIBOR to cease publication at the end of 2021.

Global – Longer Runway for USD LIBOR Legacy Transactions, Global Compliance News 

• The announcement from ICE and the regulators of a proposed extension for certain tenors of USD LIBOR should be helpful in addressing the tough legacy USD issues. However, it should be noted that the regulators are still calling for no more new USD LIBOR issuance from 2022.

Market Details

Focus on Building RFR Liquidity – It’s Time to Leave LIBOR Behind, Global Banking and Finance Review 

• There is now a significant focus on building liquidity in the markets underlying the RFR benchmarks as well as developing term benchmarks. This should ease the transition and make the new benchmarks more robust, but the question remains of whether the term rates will be available in time with the end of 2021 less than 12 months away.

Fannie Mae, Freddie Mac Make Headway on LIBOR Change, Mortgage Professional America 

• Despite the extension for some USD LIBOR tenors, the GSEs are pushing ahead with their transition plans including discontinuing purchasing and issuing LIBOR products as well as supporting the development of the underlying markets in the RFRs.

Refinitiv to Launch Production Term Sonia Benchmark on January 11, 2021, Refinitiv 

• Refinitiv announced plans to publish a term SONIA benchmark in mid-January which will help to support the transition away from GBP LIBOR by providing a potential solution for some of the tough legacy products for which an overnight rate was not suitable.

Securitization Disclosure and Document Updates for 2020 and 2021, National Law Review 

• This panel discussion featuring structured finance and securitization partners covers a range of topics such as the effects of the COVID-19 pandemic on the structured finance industry, the eventual cessation and replacement of LIBOR and an outlook to recent securities law changes that will affect offerings in 2021 and beyond.