The IBOR Transition Digest is a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they continue to transition from LIBOR and its variants to replacement benchmark interest rates. As the market moves to the next phase of IBOR transition, 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.

 

Thought LeadershipNews and Developments | Events


 

THOUGHT LEADERSHIP

LIBOR Phase Out – Tax Implications in the Context of Related-Party Loans
Eye on IBOR blog, 8 June 2022
As market participants evaluate their loan portfolios and implement strategies to transition away from the London Interbank Offered Rate (“LIBOR”), they must address not only third-party loans, but related-party loans as well, in part because Treasury regulations under Internal Revenue Code Section 482 require such loan agreements to reflect an arm’s length rate of interest.

IBOR Legislation and the Final Regulations
TaxQuarterly, 23 May 2022
Under the final Treasury regulations under Treas. Reg. section 1.1001-6, which generally provide broad relief from the potential U.S. federal income tax consequences of IBOR replacement for most contracts, assuming an IBOR being replaced is a rate that is a “discontinued IBOR” on the date of replacement (within the meaning of the regulations), as long as there are no payments made between the parties to a contract unrelated to IBOR replacement, a LIBOR replacement amendment is not generally considered to result in a deemed exchange for federal income tax purposes. The exceptions to the blessing of the final regulations are all focused on the parties intending to transfer value in connection with an IBOR replacement.

 

NEWS AND DEVELOPMENTS

United States – Syndicated and Bilateral Loans 

LIBOR Transition: Lessons from Across the Ocean
Loan Syndications & Trading Association, 12 May 2022
Discussing the US term RFR approach compared to the UK compounded in arrears approach, the treatment of legacy loans (the UK has completed the transition), and the ways in which the US can complete its transition of legacy loans.

LIBOR Transition & Leveraged Loans: What 1Q22 Has Taught Us
Loan Syndications & Trading Association, 20 April 2022
A webcast outlining trends during the first quarter of 2022 with respect to new originations of SOFR and other RFR loans, and what remains to be done to remediate legacy loans.

United States – Derivatives

On-Demand Webinar: CME SOFR First for Options
CME Group, 5 May 2022
Describing the 'SOFR First for Options' initiative, geared toward accelerating adoption and liquidity in SOFR options during the months of June and July.

Announcing SOFR First for Options
CME Group, 5 May 2022
A market-wide initiative geared toward accelerating adoption and liquidity in SOFR options during the months of June and July by waiving exchange trading fees, deepening liquidity, and sunsetting specified Eurodollar options.

ARRC Welcomes CME Group’s SOFR First for Options Announcement
Alternative Reference Rates Committee, 5 May 2022
SOFR First for Options will help propel successful transition of the exchange-traded options market, one of the last key remaining markets that still needs to shift away from U.S. dollar LIBOR ahead of its cessation in mid-2023.

United States – General

ARRC Releases Recommendations for Contracts Linked to the USD LIBOR ICE Swap Rate
Alternative Reference Rates Committee, 8 June 2022
“These recommendations are yet another important ARRC tool for ensuring everyone is prepared well ahead of next year.”

ARRC Recommendations for Contracts Linked to the USD LIBOR ICE Swap Rate
Alternative Reference Rates Committee, 8 June 2022
Recommending that (i) market participants identify the fallbacks in their existing portfolio of USD LIBOR ICE Swap Rates contracts, and retire the debt covered by those contracts or amend them to refer to SOFR or to include hardwired fallbacks, and (ii) for legacy contracts that cannot be amended or retired, that calculation agents consider the ARRC’s fallback formula in determining a successor rate.

SOFR Academy Letter to Federal Reserve Bank of New York re Forthcoming Launch of Across-the-Curve Credit Spread Indices
SOFR Academy, 2 June 2022
Introducing a “robustly defined credit sensitive supplement” to SOFR in response to market demand for a clear market convention.

ARRC Provides Update Endorsing CME 12-Month SOFR Term Rate
Alternative Reference Rates Committee, 19 May 2022
The ARRC notes that 12-month LIBOR rates are relatively less used, primarily in legacy adjustable rate mortgage products and as an input in trade or receivables finance pricing, and suggests that their use be directed primarily toward use as part of a fallback in legacy products that reference 12-month LIBOR and in trade or receivables finance.

Canada – General

Consultation on a potential new term interest rate to replace CDOR in certain financial instruments
Canadian Alternative Reference Rate Working Group, 16 May 2022
The demand for a term rate option in Canadian dollar loan facilities has been further strengthened by the increasing use of Term SOFR to replace the LIBOR borrowing option in US dollar loans. The Term CORRA subgroup believes that it may be possible to develop a robust term rate from CORRA based futures if, or when, sufficient liquidity develops in these futures, and proposes to limit the published tenors, at least initially, to the key 1- and 3-month tenors used currently for lending. Comments are due by 30 June 2022.

Announcement of Cessation of Canadian Dollar Offered Rate (CDOR) in June 2024
Refinitiv Benchmark Services (UK) Limited, 16 May 2022
Refinitiv, the administrator of CDOR, announced on 16 May 2021 that the calculation and publication of all tenors of CDOR will cease permanently, immediately following a final publication on Friday 28 June 2024. This announcement constitutes an “Index Cessation Event” under the ISDA 2020 IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol.

Authorization Notice: the Canadian Dollar Offered Rate and Refinitiv Benchmark Services (UK) Limited
Ontario Securities Commission, 16 May 2022
Authorizing the cessation by RBSL of the provision of the remaining tenors of CDOR on the CDOR Cessation Date of 28 June 2024.

Avis autorisant Refinitiv Benchmark Services (UK) Limited à cesser de fournir le Canadian Dollar Offered Rate (DÉCISION N° 2022-PDG-0032)
Autorite des Marches Financiers, 16 May 2022
Authorizing the cessation by RBSL of the provision of the remaining tenors of CDOR after final publication on 28 June 2024.

OSFI’s expectations for CDOR Transition
Office of the Superintendent of Financial Institutions, 16 May 2022
In a letter to federally regulated financial institutions and private pension plans, the OSFI advised of its expectations relating to “seamless transition,” its plans to provide additional capital and liquidity guidance for bankers’ acceptances, and its supervisory risk assessment plans.

CDOR transition roadmap and milestones
Canadian Alternative Reference Rate Working Group, 16 May 2022
Discussing Canada’s two-stage transition plan and key priorities.

United Kingdom – General

Market Notice - The Bank’s risk management approach to collateral referencing USD LIBOR for use in the Sterling Monetary Framework
Bank of England, 19 May 2022
From 1 October 2022, the Bank of England will progressively increase haircuts on collateral referencing USD LIBOR, maturing after 30 June 2023, for use in the Sterling Monetary Framework (SMF). Further, Bank of England eligibility criteria was updated to set out that collateral referencing USD Credit Sensitive Rates would be ineligible for use in the SMF.

Europe – General

Questions & Answers on the Benchmarks Regulation (BMR)
European Securities and Markets Authority, 23 June 2022
Adding a new answer addressing what “readily available” data means under the BMR and how it differs from other types of input data.

Guidelines on methodology, oversight function and record-keeping requirements under the Benchmarks Regulation (ESMA81-393-288)
European Securities and Markets Authority, 7 June 2022
Summarizing the competent authorities of the EU member states and their BMR compliance status.

Asia & Pacific Rim – Derivatives

Central Clearing of SORA Derivatives Extended to 31-Year Tenor
Steering Committee for SOR & SIBOR Transition to SORA, 20 June 2022
Central clearing for over-the-counter SORA derivatives has been extended by LCH, from 21 years to 31 years. The extension will encourage further development of the SORA derivatives market and deepen liquidity in longer tenors of SORA Overnight Index Swaps.

Asia & Pacific Rim – General

Fallbacks for BBSW Securities
Reserve Bank of Australia, 16 June 2022
To promote appropriate use of fallbacks, the Reserve Bank will only accept securities referencing BBSW issued after 1 December 2022 as collateral in its domestic market operations if those securities include a “robust, reasonable and fair” fallback to another interest rate. This article explains the change and how market participants can prepare for the contingency of BBSW ceasing to exist.

Review of JPY LIBOR Transition and Future Initiatives
Bank of Japan, 30 May 2022
“The transition from JPY LIBOR in the Japanese markets has progressed very smoothly due to efforts made by many market participants. Future challenges will focus on addressing a small number of contracts in Japan for which the transition from JPY LIBOR has not been completed, the transition from USD LIBOR, and efforts on the enhancement of the reliability and robustness of Japanese yen interest rate benchmarks, such as TORF and TIBOR.”

Consultation on Adjustment Spreads for the Conversion of Legacy SOR Contracts to SORA
Steering Committee for SOR & SIBOR Transition to SORA, 18 May 2022
Seeking feedback on spread adjustments and related calculation methodology, for legacy SOR contracts for purposes of the ISDA Protocol and corporate loan fallbacks.

Global – Derivatives

June 2022 Benchmark Module of the ISDA 2021 Fallbacks Protocol
International Swaps and Derivatives Associate, 15 June 2022
Enabling parties to Protocol Covered Documents that incorporate or reference the USD LIBOR Swap Rate to amend the terms of each such Protocol Covered Document to include all or specified terms of ISDA’s various updated Definitions.

Fallbacks for GBP LIBOR ICE Swap Rate & USD LIBOR ICE Swap Rate – FAQs
International Swaps and Derivatives Associate, 15 June 2022
Updated questions and answers that are designed to explain the basic operation and application of the ICE Swap Rate Fallbacks Documentation and related issues.

ISDA Statement on RBSL CDOR Announcement
International Swaps and Derivatives Associate, 16 May 2022
The announcement by Refinitiv Benchmark Services on the future cessation of all remaining tenors of the Canadian Dollar Offered Rate constitutes an index cessation event under the ISDA 2020 IBOR Fallbacks Supplement and Protocol, and 2021 ISDA Interest Rate Derivatives Definitions. As a result, the fallback spread adjustment published by Bloomberg is fixed as of the date of the announcement for all settings.

Future Cessation Guidance – 2006 ISDA Definitions and 2021 ISDA Interest Rate Derivatives Definitions - Refinitiv announcement of future permanent cessation of remaining CDOR tenors
International Swaps and Derivatives Associate, 16 May 2022
Guidance for parties to over-the-counter derivative transactions that are affected by the 16 May 2022 announcement by Refinitiv Benchmark Services relating to the future cessation of all remaining CDOR tenors. The guidance describes how terms in ISDA’s various protocols, supplements and definitions apply to the announcement.

Market Practice Note - Effective Dates for SOFR Swaps Using Different Payment/Reset Date Calendars
International Swaps and Derivatives Associate, 8 April 2022
Recommending that dates for determining SOFR be both a US Government Securities Day and New York Business Day (these are occasionally different), which is needed because the ISDA definitions do not provide for an effective date and there is no market consensus.

 

MAYER BROWN EVENTS

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.