LIBOR Transition Advisory Newsletter - May 2021

This month, additional guidance from regulators and industry bodies was provided for cash products such as loans and bonds. The increased clarity should help to crystalize the transition plans for many firms who have been waiting for such guidance. As we observed at our recent webinar, around three quarters of the polled financial services firms still do not have transition plans in place. As the clock continues to tick, we expect to see more pressure on firms to begin their transitions away from LIBOR, in particular as we approach each product’s respective recommended transition end dates.

LIBOR Highlights

General News

Over Three Quarters of Financial Institutions Are Not Prepared for the LIBOR Transition According to New Research From Duff & Phelps, Mondovisione

• At a recent webinar Duff & Phelps polled an audience of financial services participants and found that, despite progress being made since a similar poll last September, over 75% of the firms represented did not have defined LIBOR transition plans in place.

Industry Leader Interview: Marcus Morton, Managing Director Valuation Services, Duff & Phelps, Momenta Group

• Marcus Morton discusses the importance of taking action now to identify and address LIBOR exposures and of having enough of the right resources dedicated to the transition to ensure success.

Focus Shifts to Corporate Readiness for End of LIBOR, International Financial Review

• With the cessation announcement now completed and the ISDA protocols for derivatives in place, attention is now focusing onto corporate users of derivatives and other cash products and the challenges they face in managing a seamless transition for the combined portfolio.

ARRC Releases Guide to Published SOFR Averages, ARRC

• The Alternative Reference Rates Committee (ARRC) released the guide to published SOFR averages in order to provide market participants—and nonfinancial corporates in particular—with key information on the LIBOR transition, including how the published SOFR averages can be used today and what factors market participants should consider before selecting the alternative rate they use.

ARRC Announces the Second Event in its Series “The SOFR Symposium: The Final Year”, ARRC

• On May 11, 2021, ARRC conducted the second in a webinar series, The SOFR Symposium: The Final Year on May 11, 2021. The event expanded upon the ARRC’s initial SOFR Symposium in March 2021 by highlighting the significance of this transition for financial stability and the importance of moving away from LIBOR in a sustainable way. The event featured a discussion among market participants about SOFR, term rates and loan market developments.

Regulatory Updates

Descending Safely – Life After LIBOR, Bank of England

• Andrew Bailey talks about the move away from the use of LIBOR and says using robust overnight risk-free rates will help to create a more resilient and transparent financial system.

Bank of America, JPMorgan Enter Swaps Trade Tied to New LIBOR Replacement, Bloomberg

• As the transition date approaches firms are exploring other alternative benchmark rates that could replace LIBOR. 

Active Transition of Legacy GBP LIBOR Contracts, Bank of England 

• The Sterling Working Group confirmed their milestones for 2021 and that the priority for Q1 was identifying exposures, and then reiterated that the preferred route is an active transition to the new risk free rates, only relying on fallbacks where this is not an option.

Key Principles to Guide the ARRC as it Considers the Conditions it Believes are Necessary to Recommend a Forward-looking SOFR Term Rate, ARRC

• The key principles for an ARRC-recommended forward-looking SOFR term rate are that this rate should:
  • Meet the ARRC’s criteria for alternative reference rates:
  • Be rooted in a robust and sustainable base of derivatives transactions over time; and
  • Have a limited scope of use.

Market Details

Transition From LIBOR in Sterling Structured Products, Bank of England 

• The Sterling Working Group is now issuing specific transition guidance for cash product.

Singapore Passes LIBOR Milestone With $128 Billion at Stake, Yahoo! Finance

• As of May 1, 2021, lenders and borrowers must stop using the Singapore dollar swap offer rate (SOR), computed using LIBOR, for new loans and other so-called cash products and use a new benchmark. The amount of such financial instruments—including business and syndicated loans as well as retail mortgages stood at about S$170 billion ($128 billion), according to a survey conducted by the Monetary Authority of Singapore in the first half of last year.

New US Credit Benchmarks Gain Traction as LIBOR Deadline Approaches, Economic Times 

• New U.S. bank credit benchmarks are expected to gain traction in the coming months as the deadline to phase out exposure to the discredited LIBOR approaches, even as regulators continue to push an alternative called SOFR.

MBA Creates Servicer Notifications for LIBOR's Discontinuation, Mortgage Orb

• The Mortgage Bankers Association released a pair of templates for residential mortgage servicers to use in their communications with borrowers who have LIBOR-based adjustable-rate mortgages.