Per the £RFR roadmap, the key upcoming milestones are:

• by end Q1 2021, cease initiation of new GBP LIBOR-linked loans, bonds, securitisations and linear derivatives* that expire after the end of 2021

(* Except for risk management of existing positions)

“Firms should have robust processes in place to ensure that all new sterling LIBOR business is closely controlled, and the use of the linear derivative risk management exemption is consistent with its express purpose of facilitating the risk management of existing positions. Any incident of sterling LIBOR-referencing loan, bond or securitisation issuance from Thursday 1 April onwards that expires beyond end- 2021 would potentially be viewed as indicative of poor risk management and poor governance of transition.

There has been some debate in the market as to the extent to which these milestones across linear derivatives and loans would be enforced. Even if some of the excuses may seem valid e.g. end users not being ready, the annex isn’t suggesting much sympathy, going on to state:

“In a situation where end-user readiness for use of RFR-based alternatives is not yet in place, we note that alternative funding solutions exist which would be consistent with the milestones of the RFRWG[3], such as the use of a fixed rate, an alternative floating rate or a short-term LIBO0R-linked facility that expires before the end of 2021.”

The letter also goes on to remind us of the importance of active transition:

“We expect firms to intensify efforts to execute plans to transition the stock of legacy LIBOR-linked contracts ahead of confirmed cessation dates of panel bank LIBOR, wherever it is feasible to do so”

The letter covers a range of factors around ending £ LIBOR however what we’re all approaching very soon is a hard stop for £ LIBOR loans and hard(ish) stop for £ derivatives.

On 30 March we hosted a short webinar at which we talked through the Q1 milestones and contextualized developments in the busy end game for LIBOR. Click here to watch the replay.

Notes

[1] £ RFR - Sterling Risk Free Rates

[2] LIBOR - London Inter-Bank Offered Rate

[3] RFRWG - Risk Free Rates Working Group