Welcome to this ACT webinar
2 May 2019 | 12:30 – 13:15 BST
In association with
LIBOR – update for treasurers
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Agenda
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ModeratorSarah Boyce, Associate Director – Policy and Technical, ACT
Panellists Kwok Liu, Deputy Treasurer, Funding & Investment, National Grid
Peter Dahlen, Partner, Clifford Chance
Paul Deakins, Partner, Clifford Chance
Anne Drakeford, Partner, Clifford Chance
CLIFFORD CHANCE
PROGRESS WITH IBOR REFORM
Sterling
BoE WG on Risk-Free Rates
Sterling LIBOR SONIA (Bank of England)
Hong Kong Dollar
HKMA
HIBOR HONIA Consultation (Treasury
Markets Association)
Swiss franc
Swiss National WG on CHF reference
rates
CHF LIBOR SARON (SIX Swiss
Exchange/SNB)
Canadian Dollar
Bank of Canada
Canadian Dollar
LIBOR
Discontinued
Canadian Dollar
Offered Rate
(CDOR)
CDOR together with
a term risk-free rate
such as CORRA
(Thomson Reuters)
US Dollar
US Alternative Reference Rates
Committee (ARRC)
US Dollar LIBOR SOFR (NY Fed)
Australian Dollar
Reserve Bank of Australia
Australian
Dollar LIBOR
Discontinued
BBSW Reformed BBSW (ASX)
Singapore Dollar
Association of Banks in Singapore (ABS), Singapore
Foreign Exchange Market Committee, MAS
SIBOR Reformed SIBOR or
alternative rate? (ABS)
Japanese Yen
Japan Study Group on Risk-Free Rates
JPY LIBOR TONAR (BoJ)
JPY TIBOR Reformed TIBOR (JBATA)
Euro
Europe WG on Risk-Free Reference Rates
EURIBOR Reformed EURIBOR?
EONIA €STR
Old/IBOR rate New rate
Key:
CLIFFORD CHANCE
Currency Alternative
Reference Rate
Administrator Working Group Secured? Publication
time
Description Overnight Rate
Available?
Term Rate
Available?
GBP Reformed
SONIA (Sterling
Overnight Index
Average)
Bank of
England
Working Group on
Sterling Risk-Free
Reference Rates
09:00 GMT,
T+1
Unsecured overnight rate
based on the rate at which
interest is paid on sterling
short-term wholesale funds
where credit, liquidity and
other risks are minimal
P
Planned H2 2019
USD SOFR (Secured
Overnight
Financing Rate)
Federal
Reserve Bank
of New York
Alternative
Reference Rates
Committee (ARRC)
P08:00 ET,
T+1
Secured rate based on
transactions in the US
Treasury repo market
P
Planned H2 2021
JPY TONAR (Tokyo
Overnight
Average Rate)
Bank of Japan Study Group on
Risk-Free
Reference Rates
10:00 JST,
T+1
Unsecured rate based on
uncollateralised overnight
call rate market
transactions
P
Under
consideration
CHF SARON (Sales
Average Rate
Overnight)
SIX Exchange National Working
Group on Swiss
Franc Reference
Rates
P12:00, 16:00
and 18:00
CET same
day
Secured rate based on
data from the Swiss repo
market
P
A robust
derivatives-based
term rate is unlikely
to be feasible
Euro €STR (European
Short-Term Euro
Rate) –
alternative rate to
EONIA
European
Central Bank
Working Group on
Risk-Free
Reference Rates
for the Euro Area
09:00 CET,
T+1
Unsecured rate to reflect
wholesale euro unsecured
overnight borrowing
transactions with financial
counterparties
October 2019
Under consultation
ALTERNATIVES TO LIBOR
CLIFFORD CHANCE
Figure 1: Recent Movements in SOFR versus
Averaged SOFR
SOFR RATES
Figure 2: 3-Month Average of SOFR versus
3-Month LIBOR
CLIFFORD CHANCE
• Timing of any amendments to
syndicated facilities will need to
be synchronised with any
interrelated products.
• In the case of multicurrency facilities,
timing will be impacted by the speed of
reform of each applicable RFR.
• Market conditions at the time of any
amendment request as well as
borrower-specific circumstances will
also need to be considered.
• Growing number of transactions that
reference LIBOR/IBORs and that
mature post-2021.
• Existing fallbacks are likely to provide
short-term solutions only.
• No proposal yet for a credit
spread adjustment mechanic for cash
products.
• No loans have yet been signed which
hardwire RFRs as benchmark rates.
• In the European market, the LMA has
published revised Replacement of
Screen Rate wording to provide greater
flexibility for future amendments.
• Key concerns preventing the transition
to RFRs among borrowers are the
uncertainty around forward-looking
term rates, operational issues as well
as concerns around cashflow visibility.
• Working groups are considering
whether conventions used in SONIA-
referencing bonds to date are suitable
for use in the loan market.
SYNDICATED LOANS
KEY ISSUES
New Loans Legacy transactions Timing
CLIFFORD CHANCE
• Small but significant body of
transactions that reference LIBOR/
IBORs beyond 2021 without
specific fallbacks.
• Regulatory desire for “market-led”
solutions, i.e. consent solicitations,
notwithstanding issues of practicality.
• Lack of certainty around replacement
rates, and costs of implementation, are
currently disincentivising progress.
• Working groups looking at codifying
process or synthetic rates, but
outcomes currently uncertain.
• New issues referencing SONIA are
growing in scale – by mid-April there
had been 28 transactions YTD with a
notional value of £14.1 billion, but
• Market dominated by financial
institutions and supranationals, with
minimal corporate participation.
• Corporates generally split between
addition of expanded fallback language
to deal with discontinuation, and
eschewing FRN issuance.
BOND MARKETS
KEY ISSUES
Coupon
start date
Coupon
end date
SONIA rate reference period
Interest period
5 day
lag
5 days
cash flow
certainty
New Issues Legacy transactionsIllustration of SONIA FRN lag
period mechanism
CLIFFORD CHANCE
DERIVATIVES
KEY ISSUES
Risk Free
Rate Definitions
Benchmark
Supplement
Value Transfer
Term Adjustment
Credit Spread
Conversation with a corporate treasurer
Sarah BoyceAssociate Policy & Technical Director, ACT
Kwok LiuDeputy Treasurer, Funding & Investment, National Grid
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CLIFFORD CHANCE
NEXT STEPS
Identification of key regulatory/working group milestones in relation to the affected products
and the relevant currencies.
Identification of preferred implementation strategy (e.g. amendment, replacement, redemption, no
action) and any 3rd party engagement needed to implement that strategy.
Identification of timing for implementation of preferred strategy in light of regulatory/working group milestones,
market conditions and borrower-specific circumstances.
Identification of affected products and relative volumes. Assignment of stakeholder responsibilities.
Due diligence review of underlying contracts to identify:
a) benchmark references in contracts enduring beyond scheduled IBOR replacement date(s)
b) relevant currencies
c) existing fallbacks and their triggers
d) options for amendment and consent thresholds
e) interdependencies with other products. NEXT STEPS
1
4
2
3
5
Q&As
@ACTupdate#ACTwebinar
ModeratorSarah Boyce, Associate Director – Policy and Technical, ACT
Panellists Kwok Liu, Deputy Treasurer, Funding & Investment, National Grid
Peter Dahlen, Partner, Clifford Chance
Paul Deakins, Partner, Clifford Chance
Anne Drakeford, Partner, Clifford Chance
UPCOMING ACT EVENTSACT Annual Conference21-22 May 2019 | Manchester
ACT Middle East Treasury Awards Dinner30 September 2019 | Dubai
ACT Middle East Treasury Summit1-2 October 2019 | Dubai
ACT Annual Dinner13 November 2019 | London
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