FIN.

Working Group updates on key LIBOR milestones for 2020/2021

The Working Group on Sterling Risk-Free Reference Rates has updated its LIBOR transition roadmap to include key priorities and revised milestones for 2020 and 2021. The roadmap is a guide to help both lenders and borrowers plan for LIBOR cessation.

The Working Group’s key priorities are:

  1. By end-Q1 2021, lenders and borrowers take necessary steps to cease issuance of LIBOR linked loan products that expire after the end of 2021. This includes lenders making non-LIBOR alternatives available and including contractual conversion mechanisms in new or refinanced LIBOR products by end-Q3 2020;
  2. Take steps throughout 2020 to promote & enable widespread use of SONIA compounded in arrears;
  3. Take steps to enable a further shift of volumes from sterling LIBOR to SONIA in derivative markets;
  4. Establish a clear framework to manage transition of legacy LIBOR products, to accelerate reduction of stock of sterling LIBOR referencing contracts by end-Q1 2021 and complete active conversion where viable by end-Q2/3 2021; and
  5. Provide market input on issues around “tough legacy”.

In relation to loan products, the roadmap encourages lenders to take the following steps in order to meet key milestones:

By end-Q4 2020:

  • progress active conversion (eg at renewal, proactive negotiation, or using pre-agreed terms) where viable to reduce legacy volume.

By end-Q1 2021:

  • cease new issuance of sterling LIBOR-referencing products maturing after 2021;
  • complete assessment of all post-2021 contracts to identify those that can be actively converted; and
  • accelerate active conversion (eg at renewal, proactive negotiation, or using pre-agreed terms) where viable to reduce legacy volume.

By end-Q2/Q3 2021:

  • complete active conversion where viable; and
  • where active conversion is not possible, ensure robust fallbacks are adopted.

Lucy Hadrill