Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
Thought Leadership | News and Developments | Events
US Alternative Reference Rates Committee Proposes Using a 30-Day Average of the SOFR in Advance for Certain Asset-Backed Securities
Legal Update, 30 March 2021
Discussing the ARRC’s 29 March 2021 White Paper relating to the use of SOFR in securitizations. While noting that some market participants had expressed interest in an in arrears rate method (on which the ARRC continues to work), the in advance rate was designed and recommended by the ARRC’s Securitization Working Group to align with existing practices and facilitate market adoption.
LIBOR End Dates Confirmed
REVERSEinquiries, 29 March 2021
Discussing the 5 March 2021 LIBOR cessation announcements as they affect outstanding floating rate notes.
Legislating LIBOR: New York State Poised to Enact LIBOR Transition Assistance Law to Facilitate “Tough Legacy” Contract Transition
Legal Update, 25 March 2021
On 24 March 2021, the New York State Senate and Assembly passed bills that, once signed by New York Governor Andrew Cuomo, will facilitate the transition from LIBOR of “tough legacy” contracts that are governed by New York law and that do not include adequate interest rate fallback provisions that contemplate a permanent cessation of LIBOR.
What the FCA’s announced Index Cessation Event means for the 13,500+ adherents and other users of the 2020 ISDA IBOR Fallbacks Protocol and Fallbacks Supplement
The Long and Short of It blog, 17 March 2021
Addressing what the 5 March 2021 announcement by the UK Financial Conduct Authority on the future cessation or loss of representativeness of all 35 LIBOR benchmarks means for adherents to the ISDA 2020 IBOR Fallbacks Protocol and its Fallbacks Supplement, as well as counterparties using bilateral amendment agreements that incorporate the Fallbacks Protocol and Fallbacks Supplement.
United States – Loans
ARRC Releases Supplemental Recommendation of Hardwired Fallback Language for Business Loans
Alternative Reference Rates Committee, 25 March 2021
Announcing supplemental abridged versions of hardwired fallback recommendations for both bilateral and syndicated business loans, reflecting the “certainty on fallback timing and economics” resulting from the 5 March LIBOR cessation announcements.
United States – Securitizations and CLOs
Options for Using SOFR in New ABS, MBS, and CMBS Products
Alternative Reference Rates Committee, 29 March 2021
Outlining a model for using the 30-day average Secured Overnight Financing Rate in non-CLO asset-backed securities, mortgage-backed securities, and commercial mortgage-backed securities.
United States - Derivatives
White Paper on Suggested Fallback Formula for the USD LIBOR ICE Swap Rate
Alternative Reference Rates Committee, 24 March 2021
Describing a formula to calculate a fallback from the USD LIBOR ICE Swap Rate to a spread-adjusted SOFR Swap Rate, using an approach intended to complement the similar approach taken by the UK Working Group on Sterling Risk-Free Reference Rates for GBP LIBOR.
United States - General
New York State Senate Bill S297B – An act to amend the general obligations law, in relation to the discontinuance of the London interbank offered rate
New York State Legislature, passed 24 March 2021
The legislation, once signed into law by the New York governor, will replace LIBOR, by operation of law, in specified contracts under specified circumstances if LIBOR permanently ceases, and provides related prohibitions on, and protections for, market participants that rely on the legislation.
ARRC Welcomes Passage of LIBOR Legislation by the New York State Legislature
Alternative Reference Rates Committee, 24 March 2021
“This legislation will be crucial in minimizing legal uncertainty and adverse economic impacts associated with [LIBOR] transition” and provide greater certainty to market participants.
United Kingdom – Derivatives
The FCA and the Bank of England encourage market participants in a switch to SONIA in the sterling non-linear derivatives market from 11 May
Bank of England, 29 March 2021
“Following close engagement with market participants, the FCA and Bank of England support and encourage liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May this year,” to facilitate a further shift in market liquidity toward SONIA.
United Kingdom – General
Joint Letter to CEOs re Transition from LIBOR to Risk-Free Rates
Bank of England and Financial Conduct Authority, 26 March 2021
The FCA and Prudential Regulation Authority are intensifying supervisory focus to ensure regulated firms are preparing for LIBOR cessation, citing an expectation that regulated firms will meet appropriate milestones established by applicable global working groups.
Market Notice re the Bank’s risk management approach to collateral referencing LIBOR for use in the Sterling Monetary Framework
Bank of England, 24 March 2021
Imposes a haircut add-on to be applied to all LIBOR Linked Collateral, starting at 10 percentage points from and including 1 April 2021, and increasing over time to 100 percentage points from and including 31 December 2021. Also sets out conditions for providing LIBOR Linked Collateral.
Consultation on Standard on Use of Term SONIA Reference Rates
FICC Markets Standards Board, 24 March 2021
The aim of the proposed standard is to identify where there may be robust rationales for using Term SONIA for transactions in the loan, bond, and derivatives markets, and to establish standards of conduct for market participants using Term SONIA “in light of the reduced systemic risks associated with using overnight risk free rates.”
The Bank, the FCA, and the Working Group welcome the publication of the FMSB’s transparency draft of its market standard on use of Term SONIA reference rates
Bank of England, 24 March 2021
“Overnight SONIA, compounded in arrears, is a robust and reliable replacement rate to GBP LIBOR, with active and liquid markets even during times of market stress.”
Joint Letter to Trade Association Chairs/CEOs re How the Discontinuation of LIBOR May Affect Your Members and Stakeholders
Bank of England and Financial Conduct Authority, 9 March 2021
Providing background and information to help trade associations help their members with LIBOR transition.
Asia and Pacific Rim – Derivatives
Preparations for the Discontinuation of LIBOR in the JPY interest rate swaps market
Bank of Japan, 26 March 2021
Reflecting the consensus of the sub-group for the development of term reference rates on the course of action that should be followed by the swaps market.
Asia and Pacific Rim – General
Compliance with "IOSCO Principles for Financial Benchmarks (19 Principles)"
JBA TIBOR Administration, 29 March 2021
Announcing the publication of a compliance assessment with IOSCO Principles and an intention to consult on retaining Japanese Yen TIBOR and discontinuing Euroyen TIBOR, and related reform specifics and timing considerations.
Letter to Authorized Institutions re Reform of Interest Rate Benchmarks
Hong Kong Monetary Authority, 25 March 2021
Updating recommended transition milestones and reporting on related progress.
Global - Derivatives
ISDA Press Briefing: The End of LIBOR – What It Means For Derivatives Markets
International Swaps and Derivatives Association, 29 March 2021
Virtual press briefing exploring what the 5 March 2021 announcement by the Financial Conduct Authority regarding the dates that all LIBOR settings will either cease or become non-representative means for derivatives markets.
Global - General
ISDA Statement on JBATA Announcement on Yen TIBOR and Euroyen TIBOR
International Swaps and Derivatives Association, 29 March 2021
Clarifying that the 29 March statement by JBA TIBOR Administration regarding yen and euroyen TIBOR will not (a) trigger the fallbacks for euroyen TIBOR under the ISDA 2020 IBOR Fallbacks Protocol or related Fallbacks Supplement, (b) have any effect on the calculation of the spread applicable to these fallbacks, or (c) trigger fallbacks under the 2018 ISDA Benchmarks Supplement or its protocol.
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal. Join us for the following upcoming event.
Ambiguity and Confusion Surround the End of LIBOR
Webinar, 7 April 2021, at 8:00 CT/9:00 ET (Invitation to follow)
In this latest webinar in our IBOR Transition series, we will reflect on the recent IBA and FCA announcements on the cessation of LIBOR and introduce the following topics:
- What is “synthetic LIBOR” and why won’t it work in the United States (but will work in Europe)?
- Fallbacks in 2021 – are U.S. regulators mandating the use of the hard-wired approach, or not?
- What decisions must lenders make to document SOFR loans in 2021
Future webinars will go into each of these topics in greater detail, and include discussions by litigators, bank regulatory lawyers and lawyers in the UK and the EU.
