LIBOR, “the world’s most important number”, is likely to cease after 2021. This presents significant—but hopefully surmountable—challenges. We discuss the LIBOR problem, timeline and potential shorter- and longer-term solutions. We know whereof we speak; the LSTA is a member of the overall Alternative References Rates Committee (“ARRC”), the body tasked with replacing U.S. dollar LIBOR. […]
Over the past two weeks the LSTA has continued its political advocacy with legislators and regulators on issues of importance to the loan market. Last week, Meredith Coffey and Elliot Ganz, Co-heads of the LSTA’s Public Policy Group, had the opportunity to join Congressman Greg Meeks (D. NY) for a free-ranging discussion over breakfast.
“Some say only two things in life are guaranteed: death and taxes. But I say there are actually three: death, taxes, and the end of LIBOR.” – John Williams, President Federal Reserve Bank of New York, September 23, 2019.
This presentation was done at the 25th Annual ABS East Conference in Miami, FL. This presentation was moderated by our very own Meredith Coffey and it was presented by David Frey of HPS Partners, Claire Hall of DLA Piper, Steve Kudenholdt of Dentons and Phillip Thigpen of PWC. We discussed the general types and attributes […]
This was presentation was done at the 25th Annual ABS East Conference that took place in Miami. The presentation was moderated by our very own Meredith Coffey and it presented by Melanie Gnazzo of Chapman, Greg Hertick of Nomura, Richard Hopkin of AFME, Peter Phelan of US Department of Treasury, Alexey Surkov of Deloitte & […]
While the daily SOFR spike grabbed the headlines this week, other LIBOR coverage should be noted as well. First, LIBOR’s end is trending. In an American Banker Bankshot podcast, the LSTA’s Meredith Coffey discussed exactly why LIBOR is going away, what the replacement rate likely would be, and why this is important to bankers and borrowers (and students and homeowners!).
Perhaps it’s not actually a full-on bacchanalia in the loan market. To be sure, we are 10 years into a recovery, Fitch’s loan default rate sits at just 1.5% (and is expected to just inch up through 2020) and lenders are likely to accept lower spreads and looser terms. However, even in this environment, recent research from Covenant Review and LCD suggests a market that does demonstrate rational behavior.
A number of global regulators have been warning institutions that i) LIBOR is ceasing, ii) transition plans are critical and iii) it’s (past) time to move on to a new rate. Last Friday the SEC added its voice in a joint eight-page Staff Statement on LIBOR Transition. This is not simply theoretical.
In the past year, one might have noticed a certain alarmist tone in the press’s coverage of leveraged lending. Commentators have pointed to potential overheating, overleveraging (or, at least, overgrowth) of the loan market. We’ll acknowledge that leverage is higher and documents are looser. But we’d also gently recommend that commentators consider i) a data-based analysis of 2019 versus 2018 and ii) an apples-to-apples comparison to bonds. The real story is – as it often is – a bit more nuanced.
Many market participants have been closely following the LSTA’s risk retention lawsuit against the SEC and the Fed and many rumors have come to our attention concerning the status of the case. Specifically, we have been hearing that the decision would come out this week (it did not) and that we will prevail (we may or we may not). The following brief summary is meant to describe where we are now and explain what is actually likely to happen in the coming days or weeks.
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Membership in the LSTA offers numerous benefits and opportunities. Chief among them is the opportunity to participate in the decision making process that ultimately establishes loan market standards, develops market practices, and influences the market’s direction.