On March 5, the FCA as benchmark regulator officially announced that it will not compel the IBA (as benchmark administrator) to provide LIBOR benchmarks beyond the end of 2021 (or June 2023 for some USD benchmarks).
This triggered a number of formal responses:
The FCA and Bank issued a joint statement confirming the importance of LIBOR transition preparations and urging market participants to continue to take the necessary action to ensure they are ready in advance of LIBOR ceasing. Regulated firms should expect further engagement from their supervisors at both the Prudential Regulation Authority and the FCA to ensure these timelines are met as set out in this letter (the annex in particular is of relevance for corporates) .
ISDA also issued a statement confirming the fallback ‘spread adjustment’ published by Bloomberg will be fixed for all LIBOR settings. As such, Bloomberg have published the fixed Spread Adjustments for all LIBOR tenors across all LIBOR currencies.
In response, the RFR Working Group issued a statement welcoming the announcements as did the US Alternative Reference Rates Committee (ARRC).
What does this mean for corporates?
In short, not much new to be honest. It confirms what the markets were already anticipating. It has acted as an impetus to banks to move ahead more actively with their plans.
So, what should I be focusing on?
As mentioned last month, in the UK there are two key dates:
At a recent ‘talking treasury’ corporate forum on LIBOR transition, the majority of the issues discussed focused on matters not directly related to the financial markets. Top of the list for many is a decision about what to do about intercompany lending to ensure continued effectiveness for tax authorities; closely followed by the impact on accounting and commercial contracts that currently reference LIBOR.
Developments in USD markets
As previously mentioned, the Alternative Reference Rates Committee (ARRC) which is the US equivalent of the RFR WG in the UK, have announced that they do not expect LIBOR to be used after the end of 2021 in new USD transactions and have identified SOFR as the replacement benchmark reference rate.
If you have USD borrowings and/or swaps, you might want to keep an eye on pronouncements coming out of the ARRC.
There have been a number over the last few weeks on topics of relevance to corporates:
The ARRC recommends that new SOFR-based intercompany loans use the 30- or 90-day Average SOFR set in advance – this may not be suitable for those that wish to back to back intercompany with external transactions...
Please could you complete it if you can: https://www.surveymonkey.com/r/ARRCNFCWG
Finally, the ARRC are running a series of webinars for 2021. The first of which: The SOFR Symposium: The Final Year. on March 22, will focus LIBOR endgame announcements, SOFR developments, and 2021 priorities. These are generally a good way to get up to speed with developments in the US markets.
Other market developments
This month, it is worth checking out:
IBA indices: The ACT is working to understand exactly how they might be used, but the IBA have launched a series of indices that may solve the problem facing many corporates of where to check the rate they are getting from their bank.
Register for the monthly RFR newsletter: if you are not already registered, it’s worth getting onto the distribution for this newsletter. Although published under the auspices of the GBP working group, it covers international developments and is an easy one-page resource. Sign up here and read the latest edition here.
Please get in touch with any comments, questions, or feedback. We are particularly interested in hearing what the biggest challenges are that you face when looking at LIBOR transition.
Drop a line to Technical@treasurers.org
In addition, do visit the ACT LIBOR page which we will continue to update on an ongoing basis.
