LIBOR transition: GBP update—18 May, 2020

May 18, 2020 Joshua Roberts

Summary

Despite the disruption caused by the COVID-19 pandemic, the UK Financial Conduct Authority is still advising all market participants to prepare for a discontinuation of LIBOR at the end of 2021. That said, two interim deadlines which are key for borrowers have been pushed back:

  • Deadline for banks to stop signing new loans on LIBOR—pushed back from Q3 2020 to Q1 2021
  • Punitive haircuts to be applied to LIBOR-linked collateral—pushed back from 1 October 2020 to 1 April 2021

In order to prepare for the transition, borrowers should:

  • Identify their firm’s current LIBOR exposures under existing loans and derivatives, with a focus on those expiring after 2021
  • Assess their existing fallback provision and understand how their contracts would behave if they remain unamended
  • Evaluate the economic and operational impacts of the current fallback provisions, and of switching from LIBOR to SONIA
  • Understand the timeline for any amendments required to their existing contracts, and for entering into new debt an derivative contracts that may be based on SONIA rather than LIBOR

 

We’ll continue to provide updates in our resource center as market conditions evolve and implications for our clients change. In the meantime, please feel free to reach out to your Chatham representative if we can support your LIBOR transition efforts.

 


Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal/notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 20-0155

About the Author

Joshua Roberts

Josh's role is to assist Chatham's clients in assessing their exposures to the financial markets – predominantly interest rates and foreign exchange – and to structure hedging solutions to manage these risks.

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