TXF TV: The Libor transition
TXF’s co-founder Dominik Kloiber is joined by Ashley Mcdermott, a partner at Mayer Brown, and Aida Topcagic, VP for global export finance at JP Morgan to outline the complicated issues surrounding the Libor transition set for 2021, and to raise awareness around future Libor replacements.
London Inter-Bank Offered Rate (Libor), a benchmark to determine interest rates for $250 trillion of debt and derivatives, has been a mysterious force within finance since it was established in 1986. In short, Libor is a daily rate which has enabled banks to lend to one another over a certain period.
But following various scandals in relation to Libor, Andrew Bailey, chief executive of the UK's Financial Conduct Authority (FCA) announced in 2017 the authority would fail to support banks using the Libor rate after 2021. Back in 2017, this seemed liked a long way off for financiers - although now this hard deadline looms and there is yet to be a replacement rate to emerge.
An overnight reference rate is preferred, such as the SONIA rate in the UK or SOFR in the US; or, a risk free rate that isn’t Libor but that is still forward looking. However, these rates need to be a certain credit quality and are still subject to regulatory approval.
In a recent TXF report on the Libor transition, authored by Mayer Brown's partner Ashley Mcdermott, which uses TXF export finance data from 2015-2019 (covering 7,091 deals) to look at some of the upcoming challenges of the Libor transition, it is clear there are over 600 ECA-backed deals that need to be amended before the end of 2021 - or sooner (Download the free report by clicking here).
This session gives additional perspectives from the author of the report, as well as a lender’s perspective on future Libor alternatives: