Friday, March 5, 2021, the official groundwork was laid to discontinue LIBOR by the FCA, IBA and ISDA.
Note: There is no immediate impact to your LIBOR based investments, debt or swaps. However, this is formal notice by key stakeholders that LIBOR rate reporting on sterling, euro, Swiss franc and Japanese yen will cease at year end (9 months away), and LIBOR rate reporting for USD will cease 18 months later.
We strongly encourage your migration away from USD LIBOR before year end, especially if you have LIBOR based debt or swaps. Failure to manage the switch is expected to increase your borrowing costs and decrease the effectiveness of any hedges.
Are you satisfied with the pace of your LIBOR transition? Evaluate your progress against our transition checklist and let us know if we can help:
SOFR Transition Checklist
Have you established a Transition Management Protocol?
- Educate yourself and make sure your company knows what’s going on.
- Communicate with management.
Have you identified and validated your company wide LIBOR exposure across asset classes?
- Check Fallback Provisions on: Debt, Swaps, Leases, Accounts Receivables, Transfer Pricing Contracts, Credit Facilities and More.
Have you assessed contractual remediation and fall back provisions?
- What rates do your contracts use if LIBOR goes away?
- Some say fall back rates could be as high as 15%. What are yours?
Evaluate impact on hedge accounting and reporting
- Hedges and debt may have different reference index rates post LIBOR which could lead to a loss of special hedge accounting if the economics do not work.
- Hedges and debt may transition in different periods (or even years). How do you plan to keep them aligned?
- Have you determined how and when you will report impacts in your financial statement footnotes?
Have you contacted your counterparties?
- Negotiate away adverse fall back provisions now. In this case, an ounce of prevention could prevent significant costs.