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Clifford Chance

Clifford Chance

IBORs and benchmark reform

Exploring the impact of transitioning from LIBOR and other IBORS

The transition from LIBOR and other IBORs could be the most significant change to financial markets in recent years.

Against a backdrop of regulatory encouragement, participants in the financial markets have been planning and working towards transition away from LIBOR towards alternative risk free rates.

Our experts can help you to understand what this will mean for your transactions and prepare for the future.

IBORs and the Transition to Risk Free Rates in the Singapore Debt Capital Markets

The impending end of the London Interbank Offered Rate, "LIBOR", has been a discussion point for financial markets participants ever since the Wheatley Review, and thereafter, a speech by Andrew Bailey, Chief Executive of the UK's Financial Conduct Authority (FCA) on 27 July 2017 which famously heralded its demise. Market participants need to prepare for the likelihood that LIBOR will cease to exist by the end of 2021. Even if LIBOR continues to be available into 2022, the FCA may determine that it is no longer representative of its underlying market. Since 2014, the message from international regulators has been clear: with respect to the risks presented by the end of LIBOR, there needs to be a move from LIBOR to near "risk-free rates" (RFRs) which are anchored in active and liquid underlying markets. This briefing examines the impact of the transition from LIBOR to RFRs with a specific focus on the Singapore and Singapore dollar debt capital markets, and outlines what issuers and their advisers will need to consider as we approach the deadline for the end of LIBOR. Read more about IBORs and the transition to risk free rates in the Singapore debt capital markets.

LIBOR transitioning - the impact on facility agents

With LIBOR due to be phased out by the end of 2021, loan agents ("agents") need to understand how this will affect their business and how to best prepare themselves for such an unprecedented change. This briefing focuses on the impact of LIBOR transitioning for agents – both from the perspective of their own position and as representatives for lenders. Read more about LIBOR transitioning and the impact on facility agents.

LIBOR transitioning - navigating the impact for trustees in the capital markets

Corporate trustees ("trustees") for notes that mature after the end of 2021 should brace themselves for LIBOR being phased out. While trustees have been closely monitoring benchmark replacement terms since the FCA signalled that it would no longer compel banks to submit LIBOR submissions, LIBOR transitioning will increase as 2021 draws closer and trustees will need to be prepared for the impact on their role. Read more about the impact of LIBOR transitioning for trustees

US Dollar LIBOR Transition: Challenges for Securitizations and Note Issuers

On January 21, 2020, the Alternative Reference Rates Committee (the "ARRC") published a consultation regarding spread adjustments for cash products such as floating rate notes and securitizations. This consultation solicits input from market participants regarding calculation methodologies for spread adjustments. The ARRC has committed to recommending spread adjustments as part of its efforts to provide robust contractual fallback provisions to facilitate the transition from US Dollar LIBOR-based floating rates to SOFR-based floating rates. The year 2020 is a critical year for preparing for LIBOR cessation. This briefing discusses benchmark transition challenges related to LIBOR-based floating rate notes and securitizations and related issues to be considered by floating rate note issuers, securitization sponsors and servicers. Read more on the US Dollar LIBOR transitions and the challenges for securitizations and note issuers.

LIBOR transition for the infrastructure sector

With 2020 set to be a critical year for LIBOR transition, the infrastructure market will face some significant challenges as it transitions towards the use of risk-free rates (RFRs). We look at some of those challenges and the steps market participants should be taking now to ensure a smooth transition before the end of 2021. Read more about LIBOR transition for the infrastructure sector.

Transition from LIBOR to an Alternative Benchmark Rate Raises Concerns Particular to REMICs

On October 8, 2019, the U.S. Department of Treasury proposed regulations that would address the tax issues for Real Estate Mortgage Investment Conduits that could arise from the impending transition away from interbank offered rates as reference rates for floating rate debt. As discussed in this briefing, the Proposed Regulations include some important conditions that – if adopted as proposed – will require close oversight to confirm that they are met.

Given the severity of the potential ramifications of not meeting these requirements, it is critical that all participants of a REMIC deal are aware of, and seek legal advice regarding, the tax aspects of switching to a replacement benchmark rate. Read more about the Transiton from LIBOR to an Alternative Benchmark Rate and the concerns raised in particular to REMIC's.

Sterling LIBOR transition – 2020 Roadmap

The UK regulators, in a series of co-ordinated publications, have stepped up their warnings to market participants to move away from the use of sterling LIBOR. Although there has already been much progress in the markets, this is a clear sign that momentum is expected to increase during the course of 2020 in order for market participants to be ready for the cessation of LIBOR in 2021.

In this note, we explore these publications and their implications. Read more about Sterling LIBOR transition - 2020 Roadmap

LIBOR - Loan Market Update

With just over two years to go until the FCA no longer compels banks to submit quotes for LIBOR, regulatory pressure towards transition away from LIBOR continues. Compared with other financial markets in which issuances in risk-free rates (RFRs) are moving towards becoming the norm, there have been relatively few transactions based on RFRs in the loan markets. The recent issuance of LMA exposure draft documentation may be the catalyst for movement towards resolution of the outstanding questions and further movement towards the use of RFRs. 

In this note, we consider the LMA documentation and some of the other issues relating to transition in the loan market. Read more about LIBOR - Loan Market Update.

Rate Expectations: Transitioning away from LIBOR - practical guidance for corporate treasurers

It has been over 18 months since Andrew Bailey, Chief Executive of the UK’s Financial Conduct Authority (FCA), announced the need for the market to transition away from LIBOR before the end of 2021. As we get ever closer to that December 2021 end date, this briefing explores the current state of LIBOR transition, what a move to risk-free rates will mean in practice for corporate treasurers, and some key steps that treasurers might take in the near term to ready themselves for LIBOR’s potential demise. Read more about Rate Expectations: Transitioning away from LIBOR - practical guidance for corporate treasurers.

OIS and RFR Futures Conventions: Lessons for LIBOR replacement term rates

The development of term benchmarks based on risk-free rates (RFRs) is an important aspect of the work to facilitate a successful transition from LIBOR, particularly for corporate lending and other cash products. This briefing considers how conventions used in Overnight Index Swaps (OIS) and RFR futures markets are relevant to the development of RFR-based term rates. Read more about OIS and RFR Futures Conventions: Lessons for LIBOR replacement term rates.

LIBOR - a brief history

From the outset of its creation, the syndicated loan market worked on the principle that pricing would be based on the interest rate at which interbank deposits were offered by banks to other prime banks. LIBOR will cease to be published by the end of 2021 at the latest. How did we get to this point and what are the alternatives? Read more about LIBOR - a brief history.

Transitioning from LIBORs and IBORs - an international overview

Before financial markets can be encouraged to move from using LIBOR or other IBORs as reference rates in new financial contracts, there must be suitable alternatives in place. This briefing provides a snapshot of “risk-free reference rates” (RFRs) selected by different markets to replace LIBORs and IBORs for different currencies. Read more about Transitioning from LIBORs and IBORs.

LIBOR - Cross Product Review

The market is looking for an appropriate replacement for LIBOR that this works across all transactions. This briefing reviews the comparative product challenges for the loan, bond (including securitisation) and derivatives markets. Read more about LIBOR - Cross Product Review.

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