Companies Still Holding On to Existing LIBOR Debt
June 13, 2022
Since the start of this year, companies issuing new floating-rate debt have had to use a benchmark other than LIBOR, which is set to cease publication on June 30, 2023. Most companies have picked the Secured Overnight Financing Rate (SOFR) for new debt. However, to regulators' frustration, they have been slow in transitioning their existing LIBOR debt to the new benchmark.
According to supervisory guidance on the transition, companies that entered into LIBOR financings or refinanced existing LIBOR debt before year-end 2021 can continue pegging these loans to LIBOR until June 30, 2023. In addition, companies with outstanding LIBOR debt can continue to hedge their exposure with LIBOR derivatives. "We're going to see LIBOR-based hedging as long as there is LIBOR-based debt to be hedged," said Amol Dhargalkar, Managing Partner and Global Head of Corporates at Chatham Financial in an article for The Wall Street Journal.
Regulators want companies to transition their existing debt as soon as possible to ensure a smooth changeover in mid-2023. "We probably have to get a little closer to the end before that sense of urgency overtakes the market," said Tom Wipf, head of the Alternative Reference Rates Committee (ARRC). "We just hope people don't get too close to the end."