LIBOR Transition Advisory Newsletter – February 2021

As 2021 gets underway in earnest, we are seeing many important developments that will help speed up the progress on transition. The ISDA protocol is live and the IBA consultation on the cessation date has finished opening the way for announcements, setting out the final dates for LIBOR.

Work on the cash products transition is also gaining momentum, with consultation on the legacy bond transition in the UK, development of the credit adjustment for SOFR in the U.S., and increasing focus beyond dollar and sterling LIBOR.

We are also observing a shift to increase awareness among the broader population of LIBOR users outside of financial institutions and an increasing focus on the operational and regulatory aspects of the transition, including reporting and documentation.

LIBOR Highlights

General News

Phasing Out LIBOR: What Private Debt Investors Need To Know - from the Duff & Phelps team: Jennifer Press and Aaron Read, Private Debt Investor

• The shift from LIBOR as a reference rate for many types of instruments may have been delayed, but preparation should still be a priority for organizations. Hear from our team members on how private debt investors (and other owners of LIBOR instruments) should prepare for the upcoming transition. 

Libor Exit to Cost Global Banks $100 Million Each This Year, Bloomberg 

• Big banks may spend USD 100 million this year, while smaller banks might spend significantly less. This could suggest considerable issues for smaller entities later.

Regulatory Updates

LIBOR – Are You Ready for Life Without LIBOR From End-2021?, FCA

• In his speech, Edwin Schooling Latter comments that the ISDA protocol is live and that the IBA consultation has finished, opening the way for FCA announcements on the final cessation of LIBOR.

Key Resources for Firms Transitioning From LIBOR, Bank of England 

• To support the LIBOR transition, the Bank of England has issued a series of short videos covering key aspects of the transition.

"Pushing Ahead with SOR-SORA Transition in 2021", Monetary Authority of Singapore

• The Monetary Authority of Singapore (MAS) has indicated that it will push ahead with the transition to SORA but is adjusting its timetable to reflect the IBA consultation on the end date for USD LIBOR.

Market Details

New IBOR Fallbacks Take Effect for Derivatives, ISDA 

• ISDA transition protocol has now taken effect. Any new derivatives issued using the ISDA standard documentation will automatically contain the agreed fallback language. Over 12,000 entities have also adhered to the protocol for their legacy derivatives portfolios.

IHS Markit to Publish Daily Credit Spread Adjustment for SOFR from Q2 2021, IHS Markit

• IHS Markit is developing a USD SOFR credit spread adjustment, which utilizes transaction data on commercial paper, certificates of deposit and corporate bonds issued by banking institutions. IHS Markit expects to deliver and publish the daily USD credit spread adjustment to the market beginning in the second quarter of 2021.

Bloomberg Launches Short Term Credit Sensitive Index to Support IBOR Transition, Bloomberg

• Data providers are now publishing the expected credit adjustment that will be required to transition from LIBOR (a credit risky interbank rate) to the new risk-free rates.

Investors Call On Companies To Take Urgent Action And Transition Their Libor-linked Bonds, The Investment Association

• The Investment Association sent an open letter to bond issuers on behalf of their members, urging them to accelerate their plans to transition the estimated remaining GBP 108 billion of sterling floating rate bonds to the new risk-free rates.