Mon, Apr 26, 2021
The Alternative Reference Rates Committee (ARRC) recently made a series of announcements providing further clarity on their recommended transition to SOFR. On March 23, they announced they will not be in a position to recommend a forward-looking Secured Overnight Financing Rate (SOFR) term rate by mid-2021 and encouraged market participants to continue to transition from LIBOR using the tools available now. In parallel, the ARRC published a white paper that outlines the model for using SOFR in non-CLO Asset-Backed Securities (ABS), mortgage-backed securities and commercial mortgage-backed securities products. The paper details new issuance of ABS products using 30-day average SOFR, with a monthly reset, set in advance of the interest accrual period with the 30 day average SOFR rate determined based on the daily published SOFR rolling averages on the New York Federal Reserve’s website.
Along with the postponement of a forward looking SOFR term rate, the ARRC also announced the selection of Refinitiv, a London Stock Exchange Group business, to publish recommended spread adjustments and spread-adjusted SOFR rates for cash products beginning in June. Refinitiv will make the spreads and spread-adjusted rates readily accessible daily to the general public without cost.
Additionally, New York State Governor Andrew Cuomo signed LIBOR legislation into law—a step that will help to minimize legal uncertainty and adverse economic impacts associated with the transition from LIBOR. This new law addresses the issue of legacy contracts that mature after mid-2023 and do not have effective fallbacks, and should reduce operational and legal risks for market participants and help with a seamless transition.
We expect an increase in pressure to accelerate the transition of both new issuance and legacy instruments ahead of the December 31, 2021 deadline.
General News
Webinar Replay: LIBOR Transition for Financial and Non-Financial Institutions, from the Kroll team: Jennifer Press, Marcus Morton, Mark Turner and Rich Vestuto
Nearly Half of Firms Recently Surveyed Still Do Not Have LIBOR Transition Plans in Place, from the Kroll Team: Jennifer Press, Marcus Morton, Mark Turner and Rich Vestuto
The End of LIBOR Is a Certainty, From Florian Nitschke, Director in the Compliance and Regulatory Consulting Practice at Kroll, Funds Europe
Market Details
ARRC Publishes White Paper on Suggested Fallback Formula for the USD LIBOR ICE Swap Rate, ARRC
ARRC Releases Supplemental Recommendation of Hardwired Fallback Language for Business Loans, ARRC
Adoption of RFRs: Major Developments in 2021, ISDA
Regulatory Updates
New York Legislature Passes SFA Supported LIBOR Transition Bill, Structured Finance Association (SFA)
UK Regulators Urge Sterling Derivatives Providers to Switch from LIBOR, Finance Magnates Comments
Fed's Quarles Warns Banks Face Intense Regulatory Scrutiny in Move Away From LIBOR, Reuters
BOE Threatens Banker Bonuses Over Pace of Libor Transition, Bloomberg
The replacement of London Inter-Bank Offered Rate (LIBOR) is a multiyear transformation, and the impact will be a seismic shift in core operations, vendor relationships and loan products.
Download the LIBOR Transition Toolkit to help gather the documentation needed to assess your LIBOR-linked exposure.
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