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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. By year-end 2021, the rate may no longer be published – leaving less than two years – for the market to transition to the Secured Overnight Financing Rate (SOFR), the rate selected by the Federal Reserve’s Alternative Reference Rates Committee (ARRC). 

CREFC serves as a member of the ARRC and co-chairs the ARRC’s Securitizations Working Group (SWG). 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 Aidasani or Lisa Pendergast.

Recent News on the LIBOR Transition 

  • January 24, 2020: ISDA published letters from the FCA and ICE providing detail on the length of time a non-representative LIBOR would be published indicating that both intend to minimize this period of time.

  • January 23, 2020: The New York State Department of Financial Services extended its deadline for regulated institutions to submit their LIBOR risk management plans by 45 days to March 23, 2020.

  • January 21, 2020: The ARRC released a consultation on spread adjustment methodologies for cash products referencing USD LIBOR.

  • December 23, 2019: The New York State Department of Financial Services directed all New York-regulated depository and non-depository institutions, insurers and pension funds to submit their risk management plans relating to the discontinuation of LIBOR by February 7, 2020.

  • December 20, 2019: Andrew Bailey, who ran the FCA, was announced as the 121st governor of the Bank of England. Bailey, is known in the financial markets as a catalyst for the LIBOR transition when, on July 27, 2017, he announced in a speech that the FCA would no longer compel banks to submit quotes for LIBOR after 2021.

  • December 18, 2019: The CFTC announced that they would provide regulatory relief when converting legacy LIBOR swaps to SOFR, publishing a series of no-action letters.

  • December 16, 2019: The Financial Policy Committee of the Bank of England issued its Financial Stability Report. Key findings include that the reliance of financial markets on LIBOR is a risk to financial stability and no firm should plan for sterling LIBOR to exist after the end of 2021. The FPC also noted that progress in SOFR transition lags behind SONIA.

  • December 13, 2019: Royal Dutch Shell signed one of the first credit facilities linked to SOFR. Under the terms of the transaction for the $10 billion revolving credit facility linked to SOFR, the LIBOR interest rate will be replaced by SOFR as early as the first anniversary of the signing date.

  • December 12, 2019: Freddie Mac priced the first CMBS transaction (FREMF 2019-KF73) to contain a class of bonds indexed to SOFR. The $765.6 million transaction included a $200 million senior class (Class AS) indexed to SOFR with the rest of the bonds indexed to LIBOR.

  • December 4, 2019: ISDA submitted a letter to the FSB OSSG on pre-cessation triggers for derivatives fallbacks indicating it will consult once again with the market in finding a solution.

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