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The London interbank offered rate, or LIBOR, has been called the world’s most important number. Quoted daily across five currencies and seven maturities, the rate underpins hundreds of trillions of dollars in contracts around the world from home mortgage loans to complex derivatives. For U.S. dollar (USD) LIBOR alone, the estimated exposure is approximately $200 trillion. 

The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued supervisory guidance  encouraging banks to “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021,” noting that new USD LIBOR issuance after 2021 would create safety and soundness risks.

CREFC serves as a member of the Alternative Reference Rates Committee (ARRC), a group of private-market participants convened by the Federal Reserve Board and Federal Reserve Bank of New York. In addition, CREFC co-chairs the ARRC’s Securitizations Working Group (SWG) with the Structured Finance Association (SFA). We are focused on helping the CRE finance industry learn about the transition from LIBOR and serving as a platform to create a constructive dialogue on the challenges our industry faces during this critical period of change. 
 
For any questions or if you would like to be involved in a CREFC working group on the LIBOR transition, please feel free to reach out to Raj AidasaniLisa Pendergast or Sairah Burki.

Latest News

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LIBOR Update: CREFC Survey on Fixed-Rate CMBS Benchmarking

November 15, 2021

On November 10, CREFC launched a survey regarding the impact on the pricing and quoting of fixed-rate CMBS as a result of the transition away from LIBOR. By way of background, federal banking regulators have said that banks must stop originating LIBOR products after December 31, 2021. The recommended replacement rate for LIBOR is the Secured Overnight Financing Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Please Respond to CREFC’s Survey to Assist in Gauging the Market’s Preference for Benchmarking Conventions for New-Issue and Legacy Fixed-Rate CMBS

CREFC’s survey asks respondents to rank their preferred benchmarks and provide feedback. Your attention to the survey would be greatly appreciated. Please click here to access the survey (and if your firm does not allow access to the survey website, please click here for a Word version which can be returned to Raj Aidasani). Submissions are requested by December 3, 2021.

While the transition will bring significant changes to floating-rate CRE securitizations, primarily SASB CMBS and CRE CLOs, the impact to fixed-rate securitizations – both new issue and legacy – will be transformative as well. Currently, fixed-rate CMBS bonds are priced and quoted off a swap rate curve (e.g., “S + 200”) that incorporates a snapshot of the forward expectations for LIBOR for the floating-rate leg. For example, a typical 10-year CMBS bond prices off a 10-year swap rate, based on a forward curve derived from LIBOR futures contracts. In addition, a significant number of fixed-rate CMBS investors hedge their positions immediately upon pricing using LIBOR swaps. 

Banks may be wary of continuing to use the LIBOR swap curve for quoting new-issue CMBS transactions after year-end 2021 in light of supervisory guidance and their internal policies regarding the transition. In addition, as the market broadly moves away from LIBOR to SOFR, LIBOR swap quotes may not be as reliable given the lack of underlying hedging activity in the market. SOFR swap volumes have grown throughout the year, and liquidity in SOFR futures contracts is high, with some reports that certain SOFR futures contracts are more liquid than their equivalent LIBOR contracts.

Based on our discussions with members, two options are under consideration for pricing and quoting fixed-rate CMBS in place of the LIBOR swap curve: 1) SOFR Swap Curve or 2) Treasury Securities.
 
SOFR Swap Curve

The SOFR swap curve is the market’s replacement for the LIBOR swap curve with forward expectations of SOFR replacing LIBOR for the floating-rate leg. As with the LIBOR forward curve, it reflects future expectations of Fed policy and market conditions. As a result of SOFR First, an initiative launched under the CFTC’s Market Risk Advisory Committee (MRAC), interdealer broker screens no longer reference LIBOR swaps and, per ClarusFT, approximately 80% of the interdealer market is now SOFR-based.

Treasury Securities

Before mid-1998, CMBS was priced off Treasuries, similar to the fixed-rate unsecured corporate bond market (which continues to price over Treasuries). Soon after the Russian financial and Long Term Capital Management liquidity crises of 1998, CMBS began pricing off the LIBOR swap curve due to the use of swaps in hedging by originators during the collateral accumulation process and the better liquidity in swap rates at the time. Currently, all new issue investment-grade CMBS tranches (except IOs) are priced versus comparable average life swap rates.

Contact

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org
CREFC’s survey asks respondents to rank their preferred benchmarks and provide feedback. Your attention to the survey would be greatly appreciated.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
LIBOR Update: CREFC Survey on Fixed-Rate CMBS Benchmarking
November 15, 2021
On November 10, CREFC launched a survey regarding the impact on the pricing and quoting of fixed-rate CMBS as a result of the transition away from LIBOR. By way of background, federal banking regulators have said that banks must stop originating LIBO

News

LIBOR to SOFR Transition – Topic of Tuesday Senate Banking Hearing

November 1, 2021

The Senate Banking Committee will hold a hearing on Tuesday entitled, “The Libor Transition: Protecting Consumers and Investors.” Witnesses testifying at the hearing include Tom Wipf, Chair of the Alternative Reference Rate Committee (ARRC) and Managing Director, Morgan Stanley; and Andrew Pizor, Staff Attorney, National Consumer Law Center. CREFC has been working with our partner financial services trade associations in advance of the hearing, and will provide a readout next week. Starting at 10am Tuesday you may watch the hearing here.

For questions about the LIBOR transition, please contact Sairah Burki at sburki@crefc.org or Raj Aidasani at raidasani@crefc.org.

Contact

Sairah Burki 

Managing Director, Regulatory Affairs
703.201.4294
sburki@crefc.org 

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org

The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
LIBOR to SOFR Transition – Topic of Tuesday Senate Banking Hearing
November 01, 2021
The Senate Banking Committee will hold a hearing on Tuesday entitled, “The Libor Transition: Protecting Consumers and Investors.” Witnesses testifying at the hearing include Tom Wipf, Chair of the Alternative Reference Rate Committee (ARRC) and Manag

News

LIBOR Update – Quarles Gives Firm Warning on Year-End Deadline; Walker & Dunlop Announces First SOFR Leveraged Loan

October 12, 2021

On October 5, Federal Reserve Governor and Vice Chair for Supervision Randal Quarles delivered a strong warning to market participants that they must transition away from LIBOR. Speaking at the Structured Finance Association Conference in Las Vegas, Quarles reinforced that LIBOR will not be available for new contracts after the end of the year and that the Fed will be watching.

Reviewing banks' cessation of LIBOR use after year-end will be one of the highest priorities of the Fed's bank supervisors in the coming months.

FHFA Housing Proposal and Current Level

Contact

JUSTIN AILES
Managing Director, Government Relations
202.448.0853
jailes@crefc.org
Randal Quarles a strong warning to market participants that they must transition away from LIBOR.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.
LIBOR Update – Quarles Gives Firm Warning on Year-End Deadline; First SOFR Leveraged Loan Announced
October 12, 2021
On October 5, Federal Reserve Governor and Vice Chair for Supervision Randal Quarles delivered a strong warning to market participants that they must transition away from LIBOR. Speaking at the Structured Finance Association Conference in Las Vegas,

CREFC's Latest Presentations and Alerts

CREFC LIBOR to SOFR Transition Alert (August 4, 2021)
CREFC LIBOR UPDATE (July 2021)
Count Down... Transitioning Away from LIBOR Webinar    (May 2020, Members Only)
CREFC LIBOR Update (February 2020)
CREFC LIBOR Update (January 2020)
CREFC LIBOR Update: Implementing SOFR in Cash Products (January 2020)

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