LIBOR Transition Team

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The last few months have seen the pace of change accelerate in the business loan market’s transition away from LIBOR. Several alternatives to the replacement benchmark rate recommended by the Alternative Reference Rates Committee (ARRC), the Secured Overnight Financing Rate (SOFR), gained momentum in the business loan market in the first part of 2021, and the ARRC and some regulators responded with efforts to highlight why SOFR should be the benchmark of choice. Set forth below are some of the milestones from an already eventful year, as well as some open questions to be worked through in the second half of 2021.
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Continue Reading Mid-Year Check In on LIBOR Transition Developments

On June 4, 2021, the Loan Market Association (LMA) published a recommended form of its reference rate selection agreement (the Selection Agreement), which has been updated following market feedback. The Selection Agreement has been updated to reflect the LMA’s suite of RFR-based documentation and rate switch agreements, and the conventions found in those documents.
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Continue Reading LMA Publish Recommended Form of Reference Rate Selection Agreement

On May 20, 2021, the UK Financial Conduct Authority (FCA) published a consultation on its proposed policy framework for exercising two of its new powers under the Benchmarks Regulation, as introduced by the UK Financial Services Act 2021 (UK BMR). These powers are designed to facilitate an orderly wind down of critical benchmarks such as LIBOR, and were discussed in more detail in our earlier blog post.
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Continue Reading FCA Consults on Use of New LIBOR Transition Powers

On March 30, 2021, the LMA published its exposure draft RFR documentation as recommended forms, and updated the documentation to reflect, among other things, the Sterling Risk-free Rate Working Group’s (the Working Group) updated conventions. The LMA also replaced their single currency SONIA and SOFR exposure drafts with two recommended form single currency RFR facility agreements, and updated their RFR terms.
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Continue Reading LMA Publishes New RFR Documentation and Updates Exposure Drafts to Recommended Forms

On March 26, 2021, the LMA published a note outlining considerations for market participants relating to the use of forward-looking term SONIA reference rates (Term SONIA Rates).

Term SONIA Rates have been available in beta form since July 2020, and available for use since 11 January 2021. Term SONIA Rates are expected to have limited use as the UK authorities have made clear their preference for the market to adopt a broad-based transition to SONIA compounded in arrears for new transactions, with use of Term SONIA Rates being more limited than the current use of LIBOR, and with SONIA compounded in arrears being seen by the Bank of England and FCA as the most robust and reliable replacement rate for LIBOR.  However, it is acknowledged that Term SONIA Rates may provide an option for loan transition for some parts of the loan market.…

Continue Reading LMA Publishes Note on the Use of Forward-Looking Term SONIA Reference Rates

March 5, 2021 marks an important day in the LIBOR transition process as the ICE Benchmark Administration (IBA), UK Financial Conduct Authority (FCA) and ISDA made important announcements on the cessation of LIBOR. In recent years the Bank of England and the FCA have made it clear that the lack of an active underlying market makes LIBOR unsustainable and unsuitable for widespread use. As a result, the Bank of England and FCA have worked closely with market participants and other regulatory authorities to ensure alternatives to LIBOR are available and that existing contracts can be transitioned onto these alternatives to safeguard financial stability and market integrity.

With today’s announcements by the IBA, FCA and ISDA, the timeline for the cessation of LIBOR has been fixed.…

Continue Reading Mark the Date: Important Announcements by IBA, FCA and ISDA

As the end of Q1 2021 draws closer, the Working Group on Sterling Risk-Free Reference Rates (the Working Group) published a Q&A that aims to address the end-Q1 milestone for no new GBP LIBOR lending and a best practice guide for GBP referencing loans (the Best Practice Guide) on February 26, 2021.

As discussed in our previous blog post (which can be found here), the Working Group recommended that market participants should not initiate new GBP LIBOR referencing loan products expiring post 2021, after the end of Q1 2021. The Q&A has been prepared to highlight considerations that market participants should take into account and addresses important questions in relation to the end-Q1 milestone.…

Continue Reading GBP Working Group publishes Q&A and Best Practice Guide

On November 20, 2020, the working group on euro risk-free rates (the Euro Working Group) published two consultations on fallback rates to EURIBOR. Market participants were invited to provide their views on the potential events that could trigger fallback measures and the fallback rates based on the euro short-term rate (€STR) and spread adjustment methodologies. The results of the consultations show that market participants are not in agreement on all matters relating to transitioning from EURIBOR to €STR.
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Continue Reading A Market Divided: EURIBOR Consultation Shows a Divide Among Market Participants

On February 13, 2021, the European Union’s (EU) amendments to the Benchmarks Regulation (2016/1011) (the Amended BMR) came into force, which provides a legislative fix for the cessation of LIBOR in legacy contracts. The Amended BMR gives the European Commission (the Commission) the power to replace critical benchmarks and other relevant benchmarks if their termination would significantly disrupt or otherwise affect the functioning of the financial markets in the EU.
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Continue Reading European Union’s Legislative Fix for the Cessation of LIBOR