Companies know the Libor transition is painful but necessary

Sensata Technologies Reports First Quarter 2021 Financial Results

There’s been progress. Obligations linked to the UK’s replacement benchmark, Sonia, are now common and have become the norm for new issuances in markets such as UK corporate debt. “We started transitioning in 2018, and we’re still going,” said Shaun Kennedy, group treasurer at Associated British Ports. “We have a lot of Libor exposure — loans, bonds, private placements with US investors — a bit of everything. We’re having to go through every single one, it’s an unreal amount of negotiating.” “The FCA announcement has focused minds,” said James Leather of Corium Treasury, who is helping businesses handle the transition. “The conversations between lenders and borrowers on how to move to Sonia are becoming more and more constructive.” Companies are becoming increasingly confident in hedging their Sonia exposures, too.

So is the corporate world prepared? No. Some of the most crucial fixings, involving US dollar Libor, are due to be phased out in the middle of 2023.

That’s not down to a lack of trying. Corporate treasurers (and their lawyers and lenders) have had to spend a great deal of time rooting out Libor obligations, which over the course of the benchmark’s life made it into every nook and cranny of the global financial system. The UK’s Financial Conduct Authority said in March that from December 31 most of its 35 daily fixings of rates, which are meant to represent the cost of unsecured borrowing in different maturities in five of the world’s most important currencies, would cease to exist.

Another big problem is that some current benchmark replacements do not at present include so-called term rates like Libor, which enable borrowers to fix the rate they will pay over a set period, say three months. Instead, Sonia and other alternatives are often used in a backward-looking way, taking an average of short-term rates over the borrowing period. This means the size of the repayment is only known days before it is due, creating uncertainty for business. Markets such as trade finance would particularly struggle with such a scenario. “You don’t want to go through the effort of transitioning to something, spending all that money and time, and then find out that you didn’t need to,” said Sarah Boyce, of the Association of Corporate Treasurers. “Clearer definitions of what’s going to count as tough legacy would be really helpful.”

In the US, bodies tasked with handling the transition have passed legislation to amend some contracts, but not everything is covered by the new laws. In the UK, there is a lack of clarity, leading businesses to put off work. Yet several challenges remain. One is the transfer of so-called tough legacy contracts, which, should Libor cease to exist, contain either no fallbacks or woefully inadequate ones.

The News Highlights

  • Companies know the Libor transition is painful but necessary
  • Check the latest News news updates and information about business, finance and more.
Disclaimer: If you need to edit or update this news from compsmag then kindly contact us Learn more

For Latest News Follow us on Google News


Latest Headlines
  • Show all
  • Trending News
  • Popular By week
Germans split on restrictions for unvaccinated |  The business
Germans split on restrictions for unvaccinated | The business
Germany’s vaccine efforts have slowed in recent weeks and that has led to discussions about how to encourage those who haven’t yet received a vaccine to do so. ...
Parents, health professionals, religious leaders call for masks to be required in schools in Duval County
Parents, health professionals, religious leaders call for masks to be required in schools in Duval County
Ad “I am a little concerned that optional will mean strong-arming, some teachers are going to strong-arm the children who are vulnerable and pressured,” said ...
Lordstown Motors takes on 'Voltage Valley' on a wild trip after financial uncertainty reveals
Homes and businesses damaged across metropolitan Detroit after heavy storms
It will be held in Downtown Armada with Macomb County Executive Mark Hackel, Macomb County Sheriff Anthony Winkersham and Brandon Lewis, director of Macomb ...
The construction of the Health Alliance advances
The construction of the Health Alliance advances
Westchester Network is also the parent organization to MidHudson Regional Hospital in Poughkeepsie and the Bon Secours Charity Network’s three hospitals – ...
Tunisians protest COVID rise and economy suffers |  Coronavirus Pandemic News
Tunisians protest COVID rise and economy suffers | Coronavirus Pandemic News
“Our patience has run out … there are no solutions for the unemployed,” Nourredine Selmi, 28, a jobless protester, told Reuters news agency. “They cannot ...
HDFC Partners with IFC Partner to Promote Affordable Green Home Financing
HDFC Partners with IFC Partner to Promote Affordable Green Home Financing
Green affordable housing can help India on its path to deliver on its commitments under the Paris Agreement, to reduce a third of its carbon emissions by 2030 ...
German American Society raises money for Hickory Grove Park through Corn Boil
German American Society raises money for Hickory Grove Park through Corn Boil
Next Sunday, August 1, the German-American Society hosts its annual Bratfest. It’s at Hickory Grove Park and is free. “It makes us feel wonderful, not only ...
Michigan Republicans Will Return Covid Aid Funds Used To Pay Their Own Bonuses |  Coronavirus
Michigan Republicans Will Return Covid Aid Funds Used To Pay Their Own Bonuses | Coronavirus
“Since these payments were made, confusion about the nature of these funds has run rampant,” a statement said. The commissioners awarded money to other elected ...
Nintendo May Soon End Submissions For New eShop Games on Wii U And 3DS
Nintendo May Soon End Submissions For New eShop Games on Wii U And 3DS
YouTube channel Impact Game Station has supposedly “received a message from someone” about Nintendo’s European branch ceasing the acceptance of submissions ...
Virus cases in South Africa decrease, beverage sales allowed
Virus cases in South Africa decrease, beverage sales allowed
The government is allowing retail alcohol sales to resume from Monday through Thursday, while bars and restaurants also will be permitted to sell alcoholic ...
Show next
Compsmag - Latest News from tech, business and health
Logo