the authoritative voice of the EMEA market

LIBOR

On 27 July 2017, Andrew Bailey, Chief Executive of the UK Financial Conduct Authority, made a speech about the future of LIBOR stating that market participants should not rely on LIBOR being available after 2021. Work is progressing on the transition to alternative near risk-free reference rates in each of the LIBOR currencies. The LMA is working with the market, other trade associations and the regulators on the transition, although there is still as yet no obvious alterantive to LIBOR for the syndicated loan market.

What's New?

ISDA launches two consultations on benchmark fallbacks

The International Swaps and Derivatives Association ("ISDA") has launched two consultations on benchmark fallbacks. The first consultation covers adjustments that would apply to fallback rates in the event certain IBORs are permanently discontinued, and the second relates to pre-cessation issues for LIBOR and certain other IBORs. Comments for both consultations are due by 12 July 2019.

ISDA subsequently released a webinar explaining the two consultations.

Working Group on Euro Risk-Free Rates consults on draft EONIA to €STR Legal Action Plan

The Working Group on Euro Risk-Free Rates has published a public consultation on an EONIA legal action plan.

The EONIA legal action plan addresses two events: (i) the proposed change to the methodology for computing EONIA on 2 October, whereby it will become €STR plus a spread; and (ii) the discontinuation of EONIA at the end of 2021. It covers legacy and new contracts referencing EONIA in different asset classes (derivative transactions, collateral agreements and cash products). There are sections in the action plan covering syndicated loans.

The consultation closes on 12 June 2019 (17:00 CET).

Working Group on Sterling Risk-Free Reference Rates provides update on adoption of risk-free rates in sterling markets

The Working Group on Sterling Risk-Free Reference Rates has published a statement on the progress on adoption of risk-free rates in sterling markets. The statement provides a review of the adoption of SONIA in different product markets in the past year, since the Bank of England implemented reforms to SONIA. The statement also discusses the development of a forward-looking Term SONIA Reference Rate ("TSRR").

US ARRC publishes recommended fallback language for floating rate notes and syndicated loans

The ARRC has published its recommended contractual fallback language for U.S. Dollar LIBOR denominated floating rate notes and syndicated loans. In respect of floating rate notes, the ARRC's recommended language defines the trigger events that start the transition away from LIBOR and outlines a waterfall approach to determine the SOFR-based successor rate and spread adjustment that would apply.

IASB update: IBOR reform and the effect on financial reporting

Following its meeting on 8 February 2019, the International Accounting Standards Board (IASB) has published an update on the proposed amendments to IFRS Standards that are intended to address concerns associated with IBOR reform.

IBA publishes results of survey on the use of LIBOR

ICE Benchmark Administration (IBA) has published the results of its survey on the use of LIBOR currencies and tenors to identify the most widely used LIBOR settings.

The survey along with other outreach work will inform IBA's work with globally active banks in order to continue the publication of certain LIBOR settings post-2021 to users with outstanding LIBOR-linked contracts which are impossible or impractical to modify.

Extension of European Benchmarks Regulation transitional period to end 2021 and agreement on low carbon benchmarks

The EU Parliament and the EU Council have reached political agreement on the extension of the transitional regime for critical and third-country benchmarks until 31 December 2021. Agreement was also reached on a proposal creating a new category of financial benchmarks aimed at giving greater information on an investment portfolio's carbon footprint.

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​LIBOR Lowdown - Developments in Benchmark Replacement

Video of the LIBOR session from the joint LMA/LSTA Conference on 6 March 2019 in London. Speaking are Kam Mahil, Director, Legal, at the LMA and Tess Virmani, Senior Vice President and Associate General Counsel, at the LSTA.

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Working Group on Sterling Risk-Free Reference Rates publishes paper on loan transactions referencing Sterling LIBOR

The Working Group on Sterling Risk-Free Reference Rates has published a paper addressed to loan market participants who continue to reference Sterling LIBOR in new and legacy transactions. The paper sets out: (i) the potential considerations associated with legacy or new loan agreements referencing LIBOR; (ii) steps which can be taken to mitigate these considerations for new transactions; and (iii) measures which can be taken to mitigate these considerations for legacy transactions.

While the note principally discusses sterling LIBOR, the considerations in the paper are likely to have relevance for syndicated loans in any currencies for which LIBOR is quoted.