Mon, May 9, 2022

LIBOR Transition Advisory Newsletter – May 2022

With the first post-LIBOR quarter behind us, now it is possible to make some observations of the transition. So far it has been relatively smooth, with firms making good progress in their transitions, helped in no small part by the availability of synthetic LIBOR curves.

Governments and regulators continue to implement legislation and publish standards to help resolve any remaining issues arising from the transition. Despite the encouraging progress, however, one thing is clear—the transition is not complete, and there remains a long list of work that still needs to be finished.

LIBOR Highlights

General News

Firms Navigating Final Challenges of the LIBOR Transition, Bloomberg Survey Finds, Bloomberg

Following the cessation or non-representation designation of Sterling, Swiss and Japanese Yen LIBORs at the end of 2021, financial services firms and corporations are largely on track for a successful transition, according to a new survey from Bloomberg. However, they continue to navigate challenges related to operations, selection of alternative rates and re-papering of existing contracts. The survey, conducted in February 2022, polled 130 executives from financial services firms and corporations around the globe.

More States Step Up to Guide LIBOR Transition, Provide Stopgap Solution, CFO Dive 

A growing number of states are contemplating laws to smooth the phaseout of LIBOR, increasing the pressure on federal lawmakers to pass legislation that would provide a uniform solution and relieve financial executives from having to contend with a patchwork of laws governing legacy LIBOR-linked contracts that lack fallback provisions. 

Finalizing LIBOR Transition – Achievements in Sterling Markets and What Remains to Be Done, Financial Conduct Authority 

Sterling markets navigated this transition on time and with minimal disruption, supporting global transition efforts towards alternative risk-free reference rates (RFRs). The Bank of England, FCA and Working Group are now able to reflect on achievements in sterling markets, set out what more needs to be done and provide an update on how the Working Group will operate in the future.

Market Details 

CME Group Reports Q1 and March 2022 Market Statistics, Yahoo Finance 

CME Group, the world's leading derivatives marketplace, reported its Q1 and March 2022 market statistics, showing average daily volume (ADV) increased 19% to 26 million (mn) contracts during the first quarter. The March ADV increased 12% to 24.4 mn contracts during the month.

LIBOR Breaches 1% for the First Time Since Onset of Pandemic, Bloomberg 

The three-month LIBOR for dollars cracked 1% for the first time in almost two years, following the market selloff across the front end. 
 
Middle-Market Preparation for LIBOR Transition Progresses, Fitch Ratings 

The middle market has made considerable progress in addressing permanent LIBOR cessation over the past year in its legacy debt documentation. Automatic conversion to alternative base rate (ABR) is now only present in 13% of the credit agreements which brings it in line with the broadly syndicated loan (BSL), according to a new Fitch Ratings report.

Lloyds Bank Sued by Property Tycoon Over “LIBOR Damage,” The Times

The former owner of Centre Point has launched a £1.5 billion legal claim against Lloyds Banking Group, linking Libor manipulation to the partial collapse of his property empire.

Regulatory Updates

ARRC Welcomes Passage of Federal LIBOR Transition Legislation in Omnibus Spending Package, ARRC 

The Alternative Reference Rate Committee (ARRC) welcomed news that President Joe Biden signed into law the Consolidated Appropriations Act, 2022, which contains critical legislation related to the transition away from U.S. dollar (USD) LIBOR. The legislation will minimize legal and operational risks and adverse economic impacts associated with the transition—providing greater certainty to a diverse array of corporate borrowers and lenders, as well as to retail bondholders and consumers, whose student loans, mortgages and investment accounts it will protect from disruption.

Federal LIBOR Legislation: Five Things Financial Market Participants Need To Know, Thomson Reuters 

On March 15, 2022, President Joe Biden signed into law the Adjustable Interest Rate (LIBOR) Act as part of a $1.5 trillion omnibus spending package. The LIBOR Act is a significant piece of federal legislation — affecting contractual terms for trillions of dollars of existing financial transactions worldwide and providing much-needed guidance for borrowers, lenders, consumers and investors navigating the upcoming cessation of LIBOR. 

FASB steps closer to LIBOR accounting relief extension, CFO Dive

FASB issued a proposed accounting standards update that would extend temporary accounting relief to December 31, 2024, from the current sunset date set for the end of this year. The proposal is designed to ease the potential accounting burden as borrowers and lenders transition to new benchmarks in a multi-year phase-out of various LIBOR tenors.

IRS Publishes Final Regulations on LIBOR Transition, Sidley Austin LLP 

In light of the discontinuation of LIBOR, the U.S. IRS and the Department of the Treasury published final regulations in late January 2022, providing guidance on the tax consequences of the discontinuation of LIBOR and certain other interbank offered rates (IBORs).

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