Members discuss the Libor-SOFR transition, including contracts and other non-treasury Libor exposures. Regulators want corporates and their banks to price new loans and other financial exposures using a USD Libor-replacement rate such as SOFR by the year-end deadline—just nine months away. But who should take the lead in this transition—the banks or the corporates? That question and other issues that companies confront relating to the move away from Libor arose at a recent meeting of NeuGroup for Capital Markets sponsored…
February 4, 2021
Talking Shop: Seeking Help From TMS Vendors for the IBOR Transition
Member Question: “For anyone using Reval, I was wondering if you have used their IBOR Transition Assessment Service (ITAS) to help with the IBOR transition; and if so, what was your experience and approximate cost to use? Or, if anyone has received any kind of system implementation help from their TMS, just curious what they were able to help with, how effective, and costs?” What ION said. A spokesperson for ION, which owns Reval, told NeuGroup Insights in an email,…
January 28, 2021
Cutting the Cord: When Banks Plan to Stop Making Libor Loans
A NeuGroup survey shows SOFR is the replacement rate for most banks, and many accounting systems aren’t yet ready.The opportunity to give feedback on a plan announced in December to allow legacy USD Libor contracts to stretch to June 30, 2023—18 months beyond the initial deadline—ended Monday. Almost everyone expects Libor’s administrator to make it official and is planning accordingly. At a recent meeting of the Bank Treasurers’ Peer Group, NeuGroup members reviewed the results of a survey on their…
January 26, 2021
Libor Transition Puzzle: FASB Provides Clarity, Relief to Corporates
Guidance from FASB clarifies accounting for all hedges impacted by the discounting transition.The Financial Accounting Standards Board (FASB) started 2021 by clarifying accounting guidance aimed at facilitating the transition of corporate floating-rate transactions away from the Libor reference rate. The standard setter is also expected to resume progress this year on issues it had set aside to address the Libor transition. Background. On Jan. 7, FASB issued ASU 2021-01, an accounting standards update that clarifies issues stemming from Topic 848, titled…
December 8, 2020
The Voyage to SOFR: TMS Headwinds for Some, Tailwinds for Others
Corporates weigh vendor readiness, the time and expense of updates and devise workarounds amid Libor transition.Corporate treasurers trying to prepare for the transition from Libor to new indices like SOFR and other alternative interest rates are assessing the readiness of their TMS vendors. Many need to decide whether to spend the time and money necessary to upgrade systems or rely on third parties or devise their own solutions instead. While a proposed extension for legacy Libor contracts may provide some…
December 1, 2020
What an Extended Libor Deadline May Mean for Corporates
Takeaways on a proposal backed by the Fed that would allow more legacy Libor contracts to mature. Libor relief? Monday brought news that US regulators welcome a proposal by Libor’s administrator to offer an additional 18 months—until June 30, 2023—for legacy contracts to mature before Libor fully winds down. Reuters called the plan a “stay of execution.” What it means for corporates. We reached out to Amanda Breslin, managing director of treasury advisory at Chatham Financial, to get the significance of…
November 17, 2020
Replacing Libor: No Criticism for Banks That Say ‘No Thanks’ to SOFR
Regulators say banks can price loans using any appropriate reference rate as they prepare for Libor’s end.You may possibly have missed a development that happened three days after the presidential election: US banking regulators gave banks more confidence they can decide to use Libor-replacement rates other than the secured overnight financing rate (SOFR), which the Federal Reserve has endorsed but that some regional banks view as problematic. “Examiners will not criticize banks solely for using a reference rate, including a…
November 12, 2020
Mismatched Hedge Risk: Derivative Values May Change as Libor Ends
Standard Chartered, helping corporates prepare for risk-free rates, describes the potential risk of “valuation jump.”The replacement of Libor by risk-free rates (RFRs) like the secured overnight financing rate (SOFR) in the US and the sterling overnight indexed average (SONIA) in the UK has been a hot topic at NeuGroup fall meetings where banks, regulators and other experts have been helping members prepare for Libor’s planned demise at the end of 2021. At a second-half meeting of the Asia Treasurers’ Peer…
October 29, 2020
Will You Be Ready When Libor Is No Longer “Representative”?
Preparing for fallback language that could be triggered when a UK regulator deems Libor non-representative.The global pandemic has not slowed the march toward Libor’s demise, scheduled for the end of 2021. And corporates have a lot to do long before then. Just last week, ISDA launched a fallback supplement and protocol, marking what it called a “major step” in reducing the impact of Libor becoming unavailable “while market participants continue to have exposure” to it.The supplement includes “robust fallbacks for…
September 24, 2020
Looking Beyond Libor: Engage Vendors, Expect Some Frustrations
Corporates preparing for a transition to SOFR may need to push some systems vendors.NeuGroup members appear to be making headway to transition floating-rate exposures to the secured overnight financing rate (SOFR) or an alternative Libor replacement. However, in a meeting in which two members detailed their preparations, a major concern arose about third-party vendors’ progress and the need to push them along. Responding to polling questions during the meeting session, 70% said they have compared notes with peer companies about their…