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Time is running out for IBOR transition

02/06/2020
The pressure on IBOR transition is by no means off and soft deadlines continue to exist for loans and other financial products that employ IBORs, including derivatives, FRNs and ABS. The Bank of England and the Financial Conduct Authority remain steadfast in encouraging the transition away from LIBOR before the end of 2021.
 
Mid-January 2020 saw the Bank of England and the Financial Conduct Authority make a joint statement encouraging the UK loan market's transition away from LIBOR before the end of 2021 and demanding that lenders cease originating new sterling LIBOR loans by September 2020.

COVID-19 has had an understandable impact on these deadlines, with the Risk Free Rate Working Group, the FCA and the Bank of England admitting that it will no longer be feasible to complete transition away from LIBOR across all new sterling LIBOR linked loans by the original end-Q3 2020 target and that there will likely be continued use of LIBOR-referencing loan products into Q4 2020.

Nevertheless, soft deadlines continue to exist for loans and other financial products that employ IBORs, including derivatives, FRNs and ABS.

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From a corporate treasurer's perspective, there is a great deal of work to undertake before the end of 2021, among others:
  • The transition from LIBOR to a new benchmark could impact internal and external treasury systems
  • Changes to fall-back provisions across a range of documentation is time and resource intensive
  • Complexities may arise in terms of hedge accounting
  • Ever present basis risk
 
Treasurers preparing for IBOR transition should have already mapped their organisation’s exposures and risks.

This includes not only the big ticket book - bilateral and syndicated loan facilities, FRNs, derivatives and ABS;  but extends additionally to the lower end of the spectrum - payroll loans, factoring, supply chain financing, in-house banking, asset-based lending etc.
 
As big as the task is, help is at hand.

On the documentation front, and where actively trading out of positions is not feasible, there are contractual fixes for the legacy book ('tough legacy' transactions aside) in the form of LMA and ISDA fall-back language and standardised FRN consent solicitation procedures. And the Bank of England has recently announced two measures to encourage the transition from LIBOR to SONIA in the cash markets:
 
  • support for the adoption of SONIA in cash products via the publication of a SONIA-linked index from July 2020 that will simplify the calculation of compounded interest rates
  • consulting on the introduction of daily screen rates for various tenors of compounded SONIA (this will obviate the need for any calculations and should greatly simplify calculation agent roles)
 
Fieldfisher has a regularly updated, dedicated IBORs website that covers much of what needs to be known, though it's not just the technical intelligence that firms need to stay abreast of. No one wants to pioneer these changes, but no one wants to be last either.
 
Our IBOR discontinuance team will check that you are at the appropriate stage of readiness given your size and positions. The team has been talking to companies for some time now and can quickly take the temperature on your readiness. All it needs is 30-60 minutes to talk you through a simple one page placemat.
 
Click through to contact one of our team and book in a time to meet.

Guy Usher - guy.usher@fieldfisher.com
Edward Miller - edward.miller@fieldfisher.com
Gonzalo Fernandez - gonzalo.fernandez@fieldfisher.com
Jayne Backett - jayne.backett@fieldfisher.com
Jenny Warren - jenny.warren@fieldfisher.com
John Delamere - john.delamere@fieldfisher.com
Marsili Hale - marsili.hale@fieldfisher.com
Gary Walker - gary.walker@fieldfisher.com
Richard Gibbard - richard.gibbard@fieldfisher.com
Simon Lafferty - simon.lafferty@fieldfisher.com
Steven Burrows - steven.burrows@fieldfisher.com
 

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