Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBOR transition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
“Racing” to the IBOR Transition Finish Line
Journal of Investment Compliance, Winter 2021, 17 August 2021
Since publication of our article in the Winter 2020 Structured Finance Bulletin, transition activity has accelerated significantly, due in large part to several key developments during 2021, including the effectiveness of the ISDA IBOR Protocol and the 5 March 2021 announcements of the planned cessation of the publication of all LIBOR settings.
United States – Syndicated and Bilateral Loans
SOFR Spread Solutions: The Price of Imperfection (LSTA, 8 September 2021)
The historical (and likely future) difference between LIBOR and SOFR is much wider than the current “LIBOR-SOFR spot spread,” and, as a result, the gap between where the LIBOR-SOFR spread “should” be and where it actually is may create a conundrum as parties think about spread adjustments on new SOFR loans.
LSTA Publishes Term SOFR Concept Document (LSTA, 31 August 2021)
In the latest addition to its SOFR Document Library, the LSTA has added a concept credit agreement that illustrates a term loan facility referencing Term SOFR as its benchmark rate of interest.
Canada – General
IBOR Fallbacks Technical Note – Amendment to Fixed Spread Adjustments of CAD CDOR 6M & 12M tenors (ISDA, 18 August 2021)
Correcting four erroneous data points in the historical data series of CDOR values used in calculating spread adjustments.
United Kingdom – Syndicated and Bilateral Loans
List of RFR referencing syndicated and bilateral loans (LMA, 29 July 2021)
Outlining the key conventions of loan transactions transitioning to risk-free rates, compiled from public sources.
United Kingdom – Derivatives
Feedback Statement – ICE Swap Rate based on GBP LIBOR – Consultation on Potential Cessation (ICE Benchmark Administration, 4 August 2021)
Summarizing the responses to the May 2021 Consultation. Publication of all tenors of the GBP LIBOR ICE Swap Rate will cease immediately after publication on 31 December 2021. Users of the benchmark should ensure that their contractual arrangements have appropriate fallbacks.
United Kingdom – General
Critical Benchmarks (References and Administrators' Liability) Bill (HL Bill 49) (UK House of Lords, 8 September 2021)
A bill to make provision about the meaning of references to Article 23A benchmarks in contracts and other arrangements and relating to the liability of administrators. The bill was introduced to address issues raised in the consultation conducted by HM Treasury.
Global – Derivatives
Future Cessation Guidance – 2006 ISDA Definitions – IBA announcements of future permanent cessation of GBP LIBOR ICE Swap Rate (ISDA, 4 August 2021)
Describing how the 2006 Definitions, Benchmarks Annex, and Fallbacks Supplement will apply to the LIBOR cessation notice.
Global – General
Statement on Credit Sensitive Rates (IOSCO, 8 September 2021)
Reiterating the importance of continued transition to robust alternative financial benchmarks and the need for those alternative benchmarks to meet IOSCO’s principles on a continuing basis. With respect to credit sensitive rates (“CSRs”) in particular, IOSCO emphasized the need to analyse CSRs with a focus on Principles 6 and 7, which focus on the trading volume of underlying markets and market data sufficiency of the applicable CSR’s design. In other words, any alternative benchmark should be based on active markets with high transaction volumes that are resilient during times of stress, and should not display the same shortcomings that affected LIBOR. IOSCO specifically warned that widespread use of CSRs instead of SOFR may “pose risks to financial stability,” and IOSCO will be “watching market developments” closely.
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
Webinar, 13 September 2021, at 12:00 pm CT/1:00 pm ET
Join Mayer Brown attorneys Brad Berman, Ryan Castillo, and Jerry Marlatt, who will discuss the Secured Overnight Financing Rates (SOFR) as a LIBOR replacement, including an overview of the progress and hurdles to date. Specific topics include:
- The development of SOFR as a benchmark, including term SOFR
- ARRC statements on SOFR
- The mechanics of SOFR and examples of SOFR offerings
- Alternatives to SOFR
IBOR Transition – an introduction to conduct risk
Webinar, 16 September 2021, at 8:00 am CT/9:00 am ET
Mayer Brown partner Marlon Paz, and head of Legal Project Management David George, discuss IBOR transition conduct risk and related risk mitigation in the first of our latest IBOR transition webinar series. With approximately 100 days until most LIBOR tenors cease to be published, additional topics to be covered during 4Q2021 include global transition regulatory requirements, industry- and subject matter-specific considerations, litigation risks, and final transition preparation tips.