LIBOR Transition Advisory Newsletter - July 2022

As we progress through this first post-LIBOR year (at least for non-USD markets), we continue to see more and more volume switching to the risk-free benchmarks.

Even in the USD markets, where most LIBOR settings will continue for another year, we have seen the uptake of SOFR as the replacement for LIBOR is gathering momentum. Further, as the liquidity in the underlying markets improves, market participants are turning their attention to other aspects of the transition, such as the impact of the legal remedies in the U.S., as well as the tax and accounting issues that may arise due to the transition.

LIBOR Highlights

General News

ARRC Releases Recommendations for Contracts Linked to the USD LIBOR ICE Swap Rate, ARRC

The Alternative Reference Rates Committee (ARRC) released recommendations for contracts linked to USD LIBOR ICE Swap Rates (USD LIBOR ISR). The recommendations recognize that these contracts are not covered by federal LIBOR legislation and that counterparties may need to take proactive steps to address the end of the USD LIBOR ISR.

ARRC Welcomes CME Group’s SOFR First for Options Announcement, ARRC

ARRC applauds CME Group’s announcement regarding the launch of SOFR First for Options, an initiative aimed at accelerating the growth of Secured Overnight Financing Rate (SOFR) options trading. This significant initiative is consistent with supervisory guidance and the ARRC’s recommendation to cease entering into new LIBOR contracts immediately, as well as the Commodity Futures Trading Commission Market Risk Advisory Committee’s SOFR First recommendation.

SOFR Displaces LIBOR as Main Rate in U.S. Swaps Markets, International Financing Review

The secured overnight financing rate is now the predominant benchmark across large swathes of U.S. interest-rate derivatives markets, according to traders and market data, as the shift away from U.S. dollar LIBOR has accelerated in recent months.

CDOR, a Benchmark for Financial Products, Will No Longer Be Published Starting June 2024, The Globe and Mail

The Canadian Dollar Offered Rate (CDOR), a crucial benchmark for a broad range of financial products, will cease being published in June 2024, marking Canada’s transition to a new reference rate system a decade after a major international rate-rigging scandal.

SOFR Gaining Momentum as Drop Dead Date for LIBOR Nears, The Global Treasurer

Transition from U.S. dollar LIBOR to its preferred alternative, SOFR, is going surprisingly well, though treasurers are having to grapple with some operational issues.

Companies Keep LIBOR on the Books Despite Push to New Benchmark, The Wall Street Journal

Many businesses continue to hedge debt tied to the troubled interest-rate benchmark, which is set to expire in June 2023.

Is Term SOFR the New Dollar LIBOR?, TXF News

The global project finance market looks set to replace one forward-looking dollar benchmark interest rate with another. Is Term SOFR effectively USD LIBOR with a new lick of paint?

Death of LIBOR and Impact on TP: Indonesian Perspective, International Tax Review

Romi Irawan and Muhammad Putrawal Utama of DDTC explain various aspects of the LIBOR transition, its implication for transfer pricing and the key takeaways for transition planning from Indonesia’s perspective.

Market Details

Credit Market Conditions Expected To Weaken in Coming Months, ABA Banking Journal

As market participants evaluate their loan portfolios and implement strategies to transition away from LIBOR, they must address not only third-party loans, but related-party loans as well.

Regulatory Updates

United States: LIBOR Phase Out – Tax Implications In The Context Of Related-Party Loans, Mondaq

Bank economists expect credit conditions to weaken in the next six months amid high inflation, according to the Credit Conditions Index released today by the American Bankers Association’s Economic Advisory Committee.

The Bank Of England’s Risk Management Approach To Collateral Referencing USD Libor For Use In The Sterling Monetary Framework - Market Notice 19 May 2022, MondoVision

This market notice sets out the Bank's risk management approach to collateral referencing overnight, 1-month, 3-month, 6-month and 12-month USD LIBOR settings for use in the Sterling Monetary Framework (SMF). It forms part of the SMF documentation for the Bank’s operations under the SMF and should be read in conjunction with the other SMF documentation, each as supplemented and amended from time to time.