The end of Libor – which has been looming over the financial markets for years – is now imminent.
The UK’s Financial Conduct Authority (FCA) has confirmed that sterling, euro, Swiss franc and Japanese yen Libor will cease after December 31, as will one-week and two-month US dollar Libor.
All other US dollar settings will end after June 30, 2023.
Despite this, even at such a late stage, the market is still developing a universal approach to address the commercial and documentation aspects of conversion, notably the implied trading spread between Libor and Sonia – the sterling overnight index average.
Tim Nicholson, KPMG partner, debt advisory, says that with so many competing pressures on businesses at present and without any apparent first-mover advantage, in his experience most borrowers are taking a wait-and-see approach until precedent has become more established.
This relaxed attitude was reflected in a member survey published by the Loan Market Association in December. It found that the percentage of respondents who thought the market would not be ready to transition at the end of this year had fallen to 11% from 19.7% in 2019.
For borrowers with a larger number of Libor-linked instruments … the transition can be extremely complex
Evidence to date shows it can take some time to transition agreements to new benchmarks, even in situations that might appear straightforward.
KPMG’s
