LIBOR Transition: Term SOFR Expected “Days” After July 26

June 8, 2021, was an eventful day in the LIBOR transition. That morning, the Interest Rate Benchmark Reform Subcommittee of the Market Risk Advisory Committee (MRAC) of the Commodity Futures Trading Commission (CFTC) announced its recommendation that starting July 26, 2021, interdealer brokers should replace trading of LIBOR linear swaps with trading of SOFR linear swaps. That same morning, the Alternative Reference Rates Committee of the New York Federal Reserve (ARRC) praised the MRAC recommendation and announced that once the switch occurs, it will be in a position to recommend CME SOFR term rates “very shortly thereafter.” June 8 also happened to be the date of the ARRC’s planned SOFR Symposium. Regulatory speakers at the symposium were confident that the July 26 date for the switch was realistic and achievable. ARRC Chair Tom Wipf clarified that he expects “very shortly thereafter” to mean “days, not weeks.”

It’s a stunning reversal in what otherwise appeared to be a dim future for Term SOFR just a few months ago. Read on our Alert, published today, to learn more about the recent developments relating to Term SOFR and its competing rates.

Duane Morris’ LIBOR Transition Team:  Roger S. Chari, Chair, Joel N. EphrossAmelia (Amy) H. Huskins, and Phuong (Michelle) Ngo.

LIBOR Transition: BSBY Out of the Gates First

With all the regulator and market focus on SOFR as the LIBOR replacement of choice, it’s easy to forget that there are other replacement rates vying for market attention. We’ve written about Ameribor and highlighted some of the recent developments in its adoption. For the most part, support for Ameribor has come from smaller Main Street banks looking for a credit-sensitive rate that more closely matches the unsecured basis on which they borrow funds.

On October 15, 2020, Bloomberg threw its hat into the ring with its Bloomberg Short Term Bank Yield Index (BSBY). After a couple of months of publishing the rate on an indicative basis, Bloomberg launched the rate on January 20, 2021, and announced in early March that the rate is available for use as a replacement benchmark rate. Read on our recently published Alert to learn more about BSBY and recent developments relating to the rate.

Duane Morris’ LIBOR Transition Team:  Roger S. Chari, Chair, Joel N. EphrossAmelia (Amy) H. Huskins, and Phuong (Michelle) Ngo.

For LIBOR Transition Procrastinators, SOFR Starter Kit to the Rescue!

LIBOR is going away.  It was a distant pronouncement in 2017, and many thought it wouldn’t happen, or would get delayed.  But it’s coming.  Soon.  December 31, 2021 may still seem a long way off, but there’s a lot to do between now and then.  Market participants may be forgiven for concentrating on the global pandemic the last few months, but regulators in many arenas have stepped up their efforts in the past month to get the word out on LIBOR transition and get everyone moving forward on the right track.

Following its Summer Series on LIBOR transition, on August 7, 2020, the Alternative Reference Rates Committee of the New York Fed published the SOFR Starter Kit, a set of factsheets to inform the public about the transition away from USD LIBOR to SOFR. The SOFR Starter Kit is intended to ensure market readiness for the transition and help participants in markets using USD LIBOR to quickly familiarize themselves with the background information of, and main issues related to, the transition. The SOFR Starter Kit has three parts:

Continue reading “For LIBOR Transition Procrastinators, SOFR Starter Kit to the Rescue!”

Hardwired for a Smoother LIBOR Transition?

The London Interbank Offered Rate (LIBOR), which has served as a reference rate for approximately $350 trillion of debt and derivatives, will be phased out after December 31, 2021. In the United States, the Alternative Reference Rates Committee (ARRC), convened by the Federal Reserve Board and the New York Fed, has been tasked with ensuring a successful transition from USD LIBOR to a more robust reference rate. In June 2017, the ARRC identified the Secured Overnight Financing Rate (SOFR) as its recommended alternative to USD LIBOR. In April 2019, the ARRC first published recommended fallback language for syndicated business loans. At the time, the recommendations provided two approaches: an “amendment approach”―which delays all decisions about the successor rate and adjustment until a future date―and a “hardwired approach”―which hardwires the priority of replacement rates to be selected into the credit agreement upon origination based on what replacement rates are available at the time of replacement and provides for an easier amendment of related terms.

The syndicated lending market has largely adopted the amendment approach so far. In June 2020, however, the ARRC released refreshed recommendations regarding fallback language for U.S. dollar-denominated syndicated business loans that reference LIBOR. Unlike the April 2019 recommendations, the June 2020 recommendations provide only for hardwired fallback provisions. Read on to see how our Alert, published today, can help you discern the differences between the hardwired approach and the amendment approach and determine which works best for you.

Continue reading “Hardwired for a Smoother LIBOR Transition?”