Supporting the transition away from the use of LIBOR in the GBP loan market
The Working Group has published two papers to support market participants in moving new and refinanced loan issuance away from GBP LIBOR and meet the Working Group’s recommended milestone to cease new issuance of GBP LIBOR-linked loans by the end of March 2021.
The first of these papers is a Question and Answer document relating to the end-Q1 2021 recommended milestone. It addresses key questions market participants may have in relation to the milestone and highlights potential considerations to take into account for the transition away from GBP LIBOR. This document was updated in June 2021 to include a new Q8 concerning existing facilities with extension options. The second paper is a Best Practice Guide in relation to conventions for new GBP SONIA referencing loans (including refinancing and renewals) and for the transition of legacy GBP LIBOR referencing loans, covering bilateral loans, syndicated loans and other loans where GBP LIBOR is in use. It consolidates relevant information from previous Working Group publications to provide a single point of reference for best practice for GBP loans maturing after the end of 2021. The paper was updated in March 2021 to include a new Appendix 3 which is intended to provide additional technical guidance and support system implementation for both lenders and borrowers, and was extended further in June 2021 to cover calculation of SONIA-based cost of carry for loans traded on the secondary market. A new Appendix 3F on compounded SONIA-based indices was added in July 2021.
Path to ending new use of GBP LIBOR-linked derivatives
The Working Group has published a paper to support market participants in meeting its upcoming recommended milestones for ending new use of GBP LIBOR in derivatives. The first of these is to cease initiation of new GBP LIBOR-linked linear derivatives by the end of March 2021, except for risk management of existing positions.
The paper details the limited circumstances when it may be appropriate to enter into new GBP LIBOR-linked derivatives after the relevant milestones, for risk management of existing positions and to support transition flows for active conversion. The Working Group’s key expectation is that any new GBP LIBOR-linked derivatives expiring after the end of 2021, entered into after the recommended milestones, be based on SONIA.
Supporting transition in sterling non-linear derivatives referencing GBP LIBOR ICE Swap Rate (ISR)
The Working Group published a paper setting out a potential methodology using SONIA-based rates which could form a replacement for GBP LIBOR ISR. This paper is intended to support market participants to transition non-linear derivatives, structured products and cash market instruments that reference the GBP LIBOR ISR, in line with the target milestones in the Working Group’s roadmap and priorities for 2021.
Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR
The Working Group published a consultation paper in order to seek feedback on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds upon the occurrence of a permanent cessation event or a pre-cessation event, and to seek feedback on the successor rate to be recommended.
This Consultation Paper will remain open until 16 March 2021. The Working Group strongly encourages market participants to respond by this deadline. It hopes to receive feedback from as broad a range of market participants as possible, including from different sectors and product categories.