August 9, 2022 - According to CLO research, just 12-13% of CLO loan collateral (and 14% of the JPM Loan Index) is on SOFR. With 11 months left before LIBOR ceases, remediation is not where most folks hoped it would be. Anecdotally, we know why this is: With the loan market dislocated – the average bid in the Morningstar/LSTA Leveraged Loan Index sits below 95 – there is very little organic remediation occurring via refinancings or new issue loans. Meanwhile, facing both inflation and potential recession, few companies are prioritizing early LIBOR transition on their loans.
Though the sluggish pace of LIBOR remediation is understandable, it still may lead to a transition traffic jam leading up to LIBOR cessation next June. In light of this, understanding where institutions truly are on LIBOR remediation would be quite valuable. Fortunately, the ARRC just released a survey asking business loan lenders and borrowers about remediation efforts already under way and plans going forward. Questions to agents and lenders include steps taken toward remediation, reception from borrowers on remediation requests, when most loans are likely to have been transitioned, reliance on amendment vs hardwired fallbacks, and more. Borrowers are asked whether they have been contacted by lenders and what their transition plans are.
The survey should help the ARRC and market participants to assess LIBOR transition readiness and the need to address any potential operational issues. Survey responses are due by September 7, 2022 and – in case one were worried – “individual firm responses will be maintained as confidential, and the survey results will be aggregated and anonymized prior to being published in order to preserve that confidentiality.” With luck, this will give the loan market a view on where we really stand on LIBOR remediation.