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 IBORtransition 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.
Thought Leadership | News and Developments | Events
SEC Office of Municipal Securities Issue Staff Statement on LIBOR Transition
Eye on IBOR Transition Blog, 23 February 2021
On January 8, 2021, the staff of the US Securities and Exchange Commission’s Office of Municipal Securities issued a statement focusing on the impact of the discontinuation of LIBOR on the municipal securities markets, highlighting the potential “material risks” that could affect issuers of municipal securities and other market participants.
What Do I Need to Do and By When? A Global LIBOR Transition Timeline
Eye on IBOR Transition Blog, 22 February 2021
To assist market participants in analysing the competing recommended best practice milestones for preparing for the transition from LIBOR to alternative reference rates, we have prepared a matrix setting forth the recommendations for the major LIBOR currencies as proposed by the several global working groups and the Financial Stability Board.
The end is nigh: UK Finance publishes new guide on LIBOR discontinuation
Eye on IBOR Transition Blog, 18 February 2021
Discussing UK Finance’s and PwC’s publication, Discontinuation of LIBOR – Guide for Banks and Lenders, a resource specifically focused on the transition issues faced by banks and other lenders.
OCC Releases IBOR Transition Self-Assessment Tool
Eye on IBOR Transition Blog, 17 February 2021
On February 10, 2021, the Office of the Comptroller of the Currency (“OCC”) released a self-assessment tool to assist the institutions that it regulates in preparing for the expected cessation of the London InterBank Offered Rate.
United States – Syndicated and Bilateral Loans
FRBNY, LSTA and Credit Sensitivity
Loan Syndications & Trading Association, 18 February 2021
Summarizing the LSTA’s recent presentation to the NY Fed on lessons learned in implementing SOFR in the loan market and how such lessons might apply to the implementation of a credit sensitive rate. Includes a link to the 14 January 2021 minutes of the Credit Sensitivity Group Forum, which includes the full slide deck from the LSTA’s presentation.
Recommendation for SOFR-Based Intercompany Loans Issued by Nonfinancial Corporations
Alternative Reference Rates Committee, 29 January 2021
The consensus recommendation of the Nonfinancial Corporate Working Group of the ARRC is that SOFR-based intercompany loans use the 30- or 90-day average SOFR set in advance, with a reset period as is determined appropriate by the firm.
United States – Floating Rate Notes and Bonds
Statement on LIBOR Transition In The Municipal Securities Market
SEC Office of Municipal Securities, 8 January 2021
The SEC statement discusses managing LIBOR transition in the municipal securities market for both existing and new contracts, appropriate disclosure of the related material risks, and preparation considerations for municipal advisors both for themselves and for their clients.
United States – Derivatives
Cleared Swaps Considerations for IBOR Fallbacks and Conversion Proposal
CME Group, 14 January 2021
A consultation considering whether and how central counterparty clearing houses can transition existing IBOR swap exposures into new Overnight Indexed Swap contracts that follow Risk-Free Rate standards, with a cash adjustment to compensate for any changes in valuation.
United States – General
LIBOR’s end game in the U.S. Requires Urgent Preparation – Opinion piece by ARRC Chair, Tom Wipf
Bloomberg, 28 January 2021
Mr. Wipf emphasizes that the proposed continuation of the publication of select tenors of USD LIBOR until 30 June 2023 “should not be misconstrued as a reprieve. Rather, it sets a clear path for the transition.” He also advocates for a legislative solution for tough legacy contracts and notes, “with the end of Libor approaching, our work remains as urgent as ever.”
IHS Markit to Publish Daily Credit Spread Adjustment for SOFR from Q2 2021
IHS Markit, 20 January 2021
IHS Markit is developing a USD credit spread adjustment that utilizes transaction data on commercial paper, certificates of deposit and corporate bonds issued by banking institutions to help the industry overcome the challenges presented by SOFR - specifically by addressing the differences in a secured versus unsecured rate.
FY2022 New York State Executive Budget – Part PP (Discontinuance of LIBOR)
State of New York, 19 January 2021
The proposed New York State legislative solution to the issue of difficult to amend legacy contracts, in the form suggested by the ARRC.
Joint industry letter to Governor Cuomo in support of LIBOR transition legislation
ARRC/SIFMA/SFA/LSTA/ISDA/Others, 15 December 2020
Twenty nine market participants urge the New York Governor to act swiftly to enact legislation that will address the issue of difficult to amend legacy contracts, noting the critical role New York will play in the transition as the common governing law of such contracts.
A Resolution for 2021: No New LIBOR – speech by Nathaniel Wuerffel at SIFMA LIBOR Transition Forum
New York Federal Reserve Bank, 10 December 2020
Mr. Wuerffel’s three resolutions: (i) no new LIBOR; (ii) build SOFR into your diet; and (iii) work off those legacy LIBOR exposures. “Best wishes for no new LIBOR in the New Year!”
United Kingdom – Syndicated and Bilateral Loans
Updated List of RFR referencing syndicated and bilateral loans
Loan Market Association, 20 January 2021
The list of public deals includes syndicated and bilateral loans, both new and legacy, that reference alternative rates either directly or via switch mechanics, and covers both LIBOR and non-LIBOR currencies.
United Kingdom – General
Response to FCA Consultation on proposed policy with respect to the exercise of the FCA's powers under new Article 23D
Bank of Japan, 3 February 2021
Because of the “considerable number” of JPY LIBOR contracts maturing after 2021, the Japanese working group supports the FCA’s views expressed in the consultation and “considers that the use of Article 23D powers would help the orderly wind-down of JPY LIBOR in Japan.”
LIBOR – are you ready for life without LIBOR from end-2021? – speech by Edwin Schooling Latter delivered at City & Financial's Managing LIBOR transition event
Financial Conduct Authority, 26 January 2021
Mr. Schooling Latter notes, “[W]e see no case for delaying decisions or announcements beyond the time necessary properly to assess the consultation responses that have now been received. … The economic terms of fair transition have been worked out, they stretch across markets and across jurisdictions. Fair spreads for conversion will be locked in when cessation and pre-cessation announcements are made. Press on with your transition.”
Response to FCA Consultation on the proposed policy with respect to the exercise of its powers in relation to LIBOR Transition
Financial Markets Law Committee, 18 January 2021
Providing an analysis of “issues of legal uncertainty” that it asks the FCA to consider in determining whether and when it might exercise its new powers, including the practicality of intervention, the scale of tough legacy contracts, and conflict in approach with foreign jurisdictions using LIBOR.
LMA responds to FCA consultation on proposed policy for exercising new benchmark powers under new Article 23A
Loan Market Association, 15 January 2021
Welcoming the Financial Services Bill and providing “factors that should be taken into account” in reaching a conclusion to the consultation, including with respect to potential inconsistency of application between UK- and non-UK-supervised entities, permitted continued use of LIBOR in legacy contracts, and application to multicurrency transactions.
LMA responds to FCA consultation on proposed policy for exercising new benchmark powers under new Article 23D
Loan Market Association, 15 January 2021
Outlining “key relevant areas [of the consultation] for the syndicated loan market,” including seeking feedback from all parties to tough legacy contracts, scope and practicality of transition of legacy contracts, and the need to minimize “disturbance or disadvantage” to affected parties.
Consultation Paper 1/21 – Solvency II: Deep, liquid and transparent assessments, and GBP transition to SONIA
Prudential Regulation Authority, 7 January 2021
Consultation to assess and transition technical information to evaluate solvency from LIBOR to SONIA. Comments due by 31 March 2021.
Europe – General
Summary of responses to the public consultation on EURIBOR fallback trigger events
European Central Bank, 15 February 2021
The vast majority of respondents agreed with the proposed fallback triggers, including non-representativeness, and emphasized the need for consistency with ISDA and other global industry bodies, and consistency across asset classes.
Summary of responses to the public consultation on €STR-based EURIBOR fallback rates
European Central Bank, 15 February 2021
The vast majority of respondents agreed with the list of proposed fallback selection criteria, including term structure methodologies (including the appropriateness of a backward-looking lookback period methodology to create a term structure for corporate lending and debt securities, and a forward-looking methodology for consumer lending and trade finance). The preferred methodology for securitisations was that identified as most appropriate for the underlying assets. Almost all agreed that the historical mean/median approach to a spread adjustment for cash products is preferred.
Executive Summary of the 1 February 2021 meeting of the National Working Group on Swiss Franc Reference Rates
National Working Group on Swiss Franc Reference Rates, 2 February 2021
Providing an update on LIBOR transition and the use of SARON. The minutes include a form of Rate Switch Amendment Agreement.
LMA responds to Working Group on Euro Risk-Free Rates' consultation on EURIBOR fallback trigger events
Loan Market Association, 15 January 2021
Responses reflect a desire for consistency with ISDA and other global industry group recommendations.
LMA responds to Working Group on Euro Risk-Free Rates' consultation on €STR-based EURIBOR fallback rates
Loan Market Association, 15 January 2021
Responses reflect a desire for consistency with ISDA and other global industry group recommendations, and to minimize basis risk between loans and related hedges.
Final Sprint in Transition to SARON - remarks by board member, Andréa Maechler, at SNB news conference
Swiss National Bank, 17 December 2020
“In order to ensure an orderly transition, it is vital that the changeover to SARON on the credit and derivatives markets occur as early as possible.”
Guidance 10/2020: LIBOR transition roadmap
Swiss Financial Market Supervisory Authority, 4 December 2020
Offering recommendations for actions to be taken with respect to new and legacy products, as well as operating systems.
Asia/Pacific Rim – General
Industry Steering Committee Announces Further Measures to Boost SORA Transition
Steering Committee for SOR & SIBOR Transition to SORA, 2 February 2021
Announcing an updated Transition Roadmap and key initiatives to support active transition to alternative reference rates.
Interest Rate Benchmark Reform in Japan - Speech of Deputy Governor Amamiya at Kin'yu Konwa Kai (Financial Discussion Meeting)
Bank of Japan, 30 January 2021
Explaining the background of LIBOR transition, the initiatives taken to date in Japan, and related challenges.
SOR Transition to SORA – FAQs for Corporates
Steering Committee for SOR & SIBOR Transition to SORA, 4 January 2021
Addressing questions relating to loans, derivatives, and operating issues.
Global – General
Transition to RFRs Review: Full Year 2020 and the Fourth Quarter of 2020
International Swaps and Derivatives Association, 28 January 2021
Analyzing trading volumes of derivatives that reference alternative risk-free rates.
A Big Milestone for Benchmark Reform – informal comments by ISDA CEO, Scott O’Malia
International Swaps and Derivatives Association, 27 January 2021
Announcing that close to 13,000 market participants have adhered to the 2020 IBOR Fallbacks Protocol, “a major achievement [that] will significantly reduce the systemic impact of an IBOR permanently ceasing or, in the case of LIBOR, being deemed non-representative.”
New IBOR Fallbacks Take Effect for Derivatives
International Swaps and Derivatives Association, 25 January 2021
Announcing the effective date of the 2020 IBOR Fallbacks Protocol and IBOR Fallbacks Supplement.
Countdown to New Fallbacks – informal comments by ISDA CEO, Scott O’Malia
International Swaps and Derivatives Association, 14 January 2021
“The new fallbacks were never intended to be a primary means of transition – they are instead a one-size-fits-all safety net intended to mitigate the systemic impact of an IBOR cessation in the worst-case scenario.” The remainder of 2021 should be used to proactively negotiate a shift from LIBOR to alternative reference rates in order to achieve more tailored outcomes.
Tentative decision regarding the comment letter feedback received on its proposed Accounting Standards Update, Reference Rate Reform (Topic 848): Scope Refinement
Financial Accounting Standards Board, 17 December 2020
Affirming the Board’s decision to expand the scope of Topic 848 to clarify contract modification relief and simplify hedge accounting relief, among other clarifications.
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.
