March 31, 2021 - As the LSTA noted in February, the Federal Reserve, OCC, FDIC and Treasury in 2020 convened a series of “Credit Sensitivity Group” workshops investigating Credit Sensitive Rates as potential replacements for LIBOR.  Ultimately, in the final workshop’s minutes, the official sector said it is “not well positioned to adjudicate the selection of a reference rate between banks and their commercial customers”, but also made clear that (1) “Market participants should seek to transition away from LIBOR in a manner that is most appropriate given their specific circumstances.” (2) “The official sector supports the continued innovation in, and development of, suitable reference rates, including those that have credit sensitive elements.” (3) “Banks may seek different characteristics when selecting an alternative reference rate…based on their own profile and business needs.” (4) “The terms of a commercial loan…are negotiated between the lending and borrowing parties to a transaction.”

In addition, in the November 6, 2020 Statement on Reference Rates for Loans, the banking agencies noted that “it is appropriate for banks to select suitable replacement rates for LIBOR that are most appropriate given their specific circumstances[, which] may include using credit-sensitive alternatives to LIBOR.”

In light of this official sector feedback, and in response to requests by members, the LSTA has been working to ensure that any potential replacement rate for LIBOR can be effectuated. This involves education around potential rates, as well as working to ensure that i) systems can consume all possible rates, ii) that all possible replacement rates can be documented and iii) that there is an understanding of conventions that replacement rates might need.

The latest step along this path was education around potential credit sensitive replacement rates for LIBOR. Last week, the LSTA hosted Bloomberg, Ice Benchmark Administration, AFX and IHS Markit in video presentations of their potential credit sensitive replacements for LIBOR. Full and Associate LSTA Members can view their presentations. Please contact Meredith Coffey with any questions.

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Playing SOFR-doku

October 14, 2021 - This week, we saw ARRC exhortations to move off LIBOR, more SOFR loans emerge and extensive price discovery around the SOFR…