10 October 2018
Following an announcement by Andrew Bailey, Chief Executive of the UK’s Financial Conduct Authority (FCA) on 27 July 2017, it became evident that market participants would need to prepare for the very real possibility that LIBOR would cease to exist – or change very substantially – soon after the end of 2021. In essence, the thinness of the interbank lending market has given rise to severe misgivings as to LIBOR’s continuing appropriateness and there is a desire to move to risk-free rates (RFRs).
Stakeholders from the different product areas are concerned to ensure that there is an appropriate replacement for LIBOR and that this works across all their transactions. This briefing contains a review of the comparative product challenges for the loan, bond (including securitisation) and derivatives markets to assist with your review of financing arrangements as a whole. In relation to each category, we consider (a) the existing documentary fallbacks in the event of LIBOR failing as the primary interest rate-setting mechanism, (b) the trigger for their application, (c) some potential documentary solutions and (d) challenges presented by LIBOR transition for that particular product.