When should you stop using LIBOR for new deals? That’s an important issue to decide soon if you want to minimize your exposure the the LIBOR Transition.
Late 2020 recommendations from the ICE Benchmark Administration note that the best practice would be for originators to stop using LIBOR contracts for new deals by the end of this year, and that ICE would no longer publish primary LIBORs after June 30, 2023. These recommendations would allow most existing contracts to roll off without needing to be converted to SOFR. Seldom-used LIBORs for tenors of 1-week and 2-months would cease to be published at the end of this year as well.
ISDA’s new IBOR fallbacks have come into effect: Are you a borrower? Do you own an interest rate cap or have an interest rate swap? It’s critical that you understand the IBOR fallbacks to avoid potentially negative financial consequences down the road. Get educated here: The ISDA IBOR Fallback Protocol and What it Means for You
News and Notes
The following links are worth considering for their potential impact on your business.
ISDA’s IBOR Fallback Protocol came into full effect as of January 25th, 2021. All new trades will reflect new the fallback language, but existing trades that do not mature prior to July 2023 will likely see both counterparties adhereing to this protocol or negotiating a bilateral agreement instead to have uniform LIBOR to SOFR conversions for derivative contracts. ISDA IBOR Protocol – Read more
CME Group has proposed that the fallback for LIBOR-based Eurodollar Futures and Options follow ISDA protocols and utilize the same spread adjustment for options strikes when SOFR is triggered into full effect as of July 2023. While notable, 98.6% of the current open interest for Eurodollar futures and options expire prior to that date, and CME has SOFR futures and options that already trade. CME’s Fallback Proposal – Downloadable PDF
Enbridge, a Canadian energy firm, became the first non-governmental, non-fiancial firm to issue SOFR-denominated debt this week, a big step for what will be a gradual market-blessing of the new benchmark index. The company issued $500 million of two-year SOFR floaters with an order book that was about 6 times oversubscribed. First Private SOFR Debt Issued – Read more
Have you been sideswipped by the LIBOR Transition? We know how your feel. CLICK HERE to sign-up for our new LIBOR Transition 10 Minute Webinar. In no time you’ll be up to speed and empowered to explain what’s happening to your boss and teammates.
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Interest Swaps or Rate Caps
Interest rates are in constant flux and having flexibility is critical to adapting and capitalizing on market changes. Whether you’re seeking to satisfy a mandatory hedging requirement from your lender, evaluating a refinancing opportunity or overseeing a portfolio of loans or bonds, every basis point has an economic impact, and we make sure your interests are protected.
To learn more about managing interest rate risk click here.
Defeasance can be the key to the sale or refinancing of your commercial property. If you loan has been sold by your lender you may be unable to prepay your loan. A successful defeasance, by releasing you from your mortgage obligation, unlocks your ability to take advantage of historically low rates. Derivative is an experienced Defeasance Consultant. We make certain all the intricate legal and financial details are fully completed and done on time. We specialize in making your defeasance stress and worry free.
To learn more about what defeasance is click here.