FEATURE
That’s the way to do it – Sofr saves the day Regulatory measures have largely resolved headline issues for USD Libor transition as Sofr becomes cheaper borrowing choice
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he SRP database still lists 217 USD Libor products across 16 national databases maturing before the USD Libor cessation date of 30 June 2023, including 24 US jurisdiction products worth US$235m. The major payouts across all databases are some form of floater (US$2.3bn), range (US$958m), or accrual (US$900m). Bigger by far is the volume that matures after the Libor cessation date: 829 products across 16 different SRP databases, including 520 products worth US$3.6 billion in the US. Again, the muchdebated range accrual payoff is prominent. It’s not clear how much of this has a discretionary route to transition, and how much might be classified ‘tough legacy’ volume. Relieved by recent regulatory and legal developments, lawyers and bankers helping transition the huge USD structured products books away from Libor have stopped quoting how much of the estimated US$15 trillion outstanding in ‘tough legacy’ contracts rests on their shoulders. “It’s still a big number, but we now have legislative solutions for a US dollar US- or New York law-governed US dollar Libor note… so I think people aren't really so much worried about the upcoming USD Libor cessation,” says Bradley Berman (below left), who represents structured product issuers as counsel in Mayer Brown’s New York-based Corporate & Securities practice.
“There's really not much left to do,” he says. “These outstanding USD Libor notes are going to change over to Sofr as a matter of law, and I would imagine issuers as a courtesy would tell their holders that coming in the next quarterly payment, your interest will be calculated in a different manner.” The market has Division U of Biden’s Economic Continuity & Stability Act to thank. This, the Adjustable Interest Rate (Libor) Act (Airla), was enacted on 15 March as a federal solution for ‘tough legacy’ and other difficult to resolve contracts. The USD market had already gained breathing space in March last year when the Bank of England extended USD Libor cessation to end-June 2023, allowing a huge swathe of products to roll off before deadline. Tim Bowler, president of Libor administrator ICE Benchmark Administration, sums up the market’s relief. “We were pleased that the US dollar panel banks agreed to continue providing Libor submissions for the main US dollar Libor settings until end June 2023,” he says, “giving the market a long run-in and some breathing room to manage the larger and more complicated US dollar market transition, particularly coming out of the pandemic.” The new law is also a game changer. Like the New York solution
I can't see a need for synthetic US dollar Libor, no, not here in the US Bradley Berman, Mayer Brown
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