Welcome to this ACT webinar

2 May 2019 | 12:30 – 13:15 BST

In association with

LIBOR – update for treasurers

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Agenda

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ModeratorSarah Boyce, Associate Director – Policy and Technical, ACT

Panellists Kwok Liu, Deputy Treasurer, Funding & Investment, National Grid

Peter Dahlen, Partner, Clifford Chance

Paul Deakins, Partner, Clifford Chance

Anne Drakeford, Partner, Clifford Chance

CLIFFORD CHANCE

PROGRESS WITH IBOR REFORM

Sterling

BoE WG on Risk-Free Rates

Sterling LIBOR SONIA (Bank of England)

Hong Kong Dollar

HKMA

HIBOR HONIA Consultation (Treasury

Markets Association)

Swiss franc

Swiss National WG on CHF reference

rates

CHF LIBOR SARON (SIX Swiss

Exchange/SNB)

Canadian Dollar

Bank of Canada

Canadian Dollar

LIBOR

Discontinued

Canadian Dollar

Offered Rate

(CDOR)

CDOR together with

a term risk-free rate

such as CORRA

(Thomson Reuters)

US Dollar

US Alternative Reference Rates

Committee (ARRC)

US Dollar LIBOR SOFR (NY Fed)

Australian Dollar

Reserve Bank of Australia

Australian

Dollar LIBOR

Discontinued

BBSW Reformed BBSW (ASX)

Singapore Dollar

Association of Banks in Singapore (ABS), Singapore

Foreign Exchange Market Committee, MAS

SIBOR Reformed SIBOR or

alternative rate? (ABS)

Japanese Yen

Japan Study Group on Risk-Free Rates

JPY LIBOR TONAR (BoJ)

JPY TIBOR Reformed TIBOR (JBATA)

Euro

Europe WG on Risk-Free Reference Rates

EURIBOR Reformed EURIBOR?

EONIA €STR

Old/IBOR rate New rate

Key:

CLIFFORD CHANCE

Currency Alternative

Reference Rate

Administrator Working Group Secured? Publication

time

Description Overnight Rate

Available?

Term Rate

Available?

GBP Reformed

SONIA (Sterling

Overnight Index

Average)

Bank of

England

Working Group on

Sterling Risk-Free

Reference Rates

09:00 GMT,

T+1

Unsecured overnight rate

based on the rate at which

interest is paid on sterling

short-term wholesale funds

where credit, liquidity and

other risks are minimal

P

Planned H2 2019

USD SOFR (Secured

Overnight

Financing Rate)

Federal

Reserve Bank

of New York

Alternative

Reference Rates

Committee (ARRC)

P08:00 ET,

T+1

Secured rate based on

transactions in the US

Treasury repo market

P

Planned H2 2021

JPY TONAR (Tokyo

Overnight

Average Rate)

Bank of Japan Study Group on

Risk-Free

Reference Rates

10:00 JST,

T+1

Unsecured rate based on

uncollateralised overnight

call rate market

transactions

P

Under

consideration

CHF SARON (Sales

Average Rate

Overnight)

SIX Exchange National Working

Group on Swiss

Franc Reference

Rates

P12:00, 16:00

and 18:00

CET same

day

Secured rate based on

data from the Swiss repo

market

P

A robust

derivatives-based

term rate is unlikely

to be feasible

Euro €STR (European

Short-Term Euro

Rate) –

alternative rate to

EONIA

European

Central Bank

Working Group on

Risk-Free

Reference Rates

for the Euro Area

09:00 CET,

T+1

Unsecured rate to reflect

wholesale euro unsecured

overnight borrowing

transactions with financial

counterparties

October 2019

Under consultation

ALTERNATIVES TO LIBOR

CLIFFORD CHANCE

Figure 1: Recent Movements in SOFR versus

Averaged SOFR

SOFR RATES

Figure 2: 3-Month Average of SOFR versus

3-Month LIBOR

CLIFFORD CHANCE

• Timing of any amendments to

syndicated facilities will need to

be synchronised with any

interrelated products.

• In the case of multicurrency facilities,

timing will be impacted by the speed of

reform of each applicable RFR.

• Market conditions at the time of any

amendment request as well as

borrower-specific circumstances will

also need to be considered.

• Growing number of transactions that

reference LIBOR/IBORs and that

mature post-2021.

• Existing fallbacks are likely to provide

short-term solutions only.

• No proposal yet for a credit

spread adjustment mechanic for cash

products.

• No loans have yet been signed which

hardwire RFRs as benchmark rates.

• In the European market, the LMA has

published revised Replacement of

Screen Rate wording to provide greater

flexibility for future amendments.

• Key concerns preventing the transition

to RFRs among borrowers are the

uncertainty around forward-looking

term rates, operational issues as well

as concerns around cashflow visibility.

• Working groups are considering

whether conventions used in SONIA-

referencing bonds to date are suitable

for use in the loan market.

SYNDICATED LOANS

KEY ISSUES

New Loans Legacy transactions Timing

CLIFFORD CHANCE

• Small but significant body of

transactions that reference LIBOR/

IBORs beyond 2021 without

specific fallbacks.

• Regulatory desire for “market-led”

solutions, i.e. consent solicitations,

notwithstanding issues of practicality.

• Lack of certainty around replacement

rates, and costs of implementation, are

currently disincentivising progress.

• Working groups looking at codifying

process or synthetic rates, but

outcomes currently uncertain.

• New issues referencing SONIA are

growing in scale – by mid-April there

had been 28 transactions YTD with a

notional value of £14.1 billion, but

• Market dominated by financial

institutions and supranationals, with

minimal corporate participation.

• Corporates generally split between

addition of expanded fallback language

to deal with discontinuation, and

eschewing FRN issuance.

BOND MARKETS

KEY ISSUES

Coupon

start date

Coupon

end date

SONIA rate reference period

Interest period

5 day

lag

5 days

cash flow

certainty

New Issues Legacy transactionsIllustration of SONIA FRN lag

period mechanism

CLIFFORD CHANCE

DERIVATIVES

KEY ISSUES

Risk Free

Rate Definitions

Benchmark

Supplement

Value Transfer

Term Adjustment

Credit Spread

Conversation with a corporate treasurer

Sarah BoyceAssociate Policy & Technical Director, ACT

Kwok LiuDeputy Treasurer, Funding & Investment, National Grid

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CLIFFORD CHANCE

NEXT STEPS

Identification of key regulatory/working group milestones in relation to the affected products

and the relevant currencies.

Identification of preferred implementation strategy (e.g. amendment, replacement, redemption, no

action) and any 3rd party engagement needed to implement that strategy.

Identification of timing for implementation of preferred strategy in light of regulatory/working group milestones,

market conditions and borrower-specific circumstances.

Identification of affected products and relative volumes. Assignment of stakeholder responsibilities.

Due diligence review of underlying contracts to identify:

a) benchmark references in contracts enduring beyond scheduled IBOR replacement date(s)

b) relevant currencies

c) existing fallbacks and their triggers

d) options for amendment and consent thresholds

e) interdependencies with other products. NEXT STEPS

1

4

2

3

5

Q&As

@ACTupdate#ACTwebinar

ModeratorSarah Boyce, Associate Director – Policy and Technical, ACT

Panellists Kwok Liu, Deputy Treasurer, Funding & Investment, National Grid

Peter Dahlen, Partner, Clifford Chance

Paul Deakins, Partner, Clifford Chance

Anne Drakeford, Partner, Clifford Chance

UPCOMING ACT EVENTSACT Annual Conference21-22 May 2019 | Manchester

ACT Middle East Treasury Awards Dinner30 September 2019 | Dubai

ACT Middle East Treasury Summit1-2 October 2019 | Dubai

ACT Annual Dinner13 November 2019 | London

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