LIBOR Transition

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Why I’m bothering to write about SOFR transition at this point is a bit of a mystery.  Hasn’t this topic now finally exhausted both our energy and interest?  Oh, and a European war is being fought as I write which, to say the least, renders the kerfuffle over LIBOR somewhat less than consequential.  But irrelevancy has not stopped me before.
Continue Reading SOFR:  The Face That Launched a Thousand Ships Was Photoshopped!

The Great Index Reformation is coming.  (I note in passing that the last Reformation led to the 100 Years War…just saying.)  This is a massive change to our market that did not bubble up from the great unwashed on the barricades demanding change, but something that has been driven from the regulatory heights.  More a Peter the Great and less a Lenin sort of thing.  This transformation of the entire floating rate market from LIBOR to SOFR is scheduled to arrive in a market near you on January 1, 2022.  After that date, with very few exceptions, the banks will neither give nor take LIBOR.  Of course, they actually could do so, as the FCA has said that one-month LIBOR will be representative until June of 2023, but the regulators have made it clear that to do so would be considered an unsafe, unsound banking practice and no bank is going to volunteer for that appellation.
Continue Reading LIBOR and SOFR:  Welcome to a Two-Speed Market?

To my gentler readers, first an apology for this interregnum in publication.  I’ve been sitting on this commentary like a hen on an egg for weeks.  All I can say is having to work for a living gets in the way of writing about interesting stuff.

It’s now July and supposedly the transition from LIBOR to SOFR is almost already a done deal.  Anyone notice that happening?  Not to bury the lead but it hasn’t happened.  Note that even the ARRC, between harrumphs about the slow take-up of SOFR products, has said that MAYBE they’ll let folks use Term SOFR soon (although they are still being a bit cagey on when and, perhaps more importantly, who will be given that privilege).  That’s not good if we’re gonna base an entire floating rate marketplace on SOFR.Continue Reading The Powers That Be Are Rallying Around SOFR and That’s a Mistake

We’ve written before about our anxiety regarding the fact that SOFR does not really seem fit for purpose to support commercial mortgage lending or indeed any cash product.  (The nonsense about charging interest in arrears should have been a tell, to be honest.)  Of course, the real problem is the absence of a credit-sensitive component to the new index, particularly in this time and place.  That strikes me as almost fatal to the ambitions of the ARRC to remake the market in its image.  SOFR is an open invitation for value transfer from lenders to borrowers at a time when inflation is closer than the horizon and an inexorable climb in the short end of the yield curve is most certainly on offer.
Continue Reading SOFR Transition: It’s Not Done Yet!

First, the ARRC, playing Charlton Heston, playing Moses, brings down from on high the ten commandments of SOFR and lo, we were sore afraid and with veneration, professed we had no God but SOFR.  A solution of sorts to a somewhat self-inflicted problem.  As we have observed before, we continue to think the solution to the problem of bankers diddling LIBOR is to punish bankers and shore up the system to make it more robust and not to blow up trillions of dollars of transactions and 40 years of precedent.  But that train has left the station.
Continue Reading LIBOR: First They Blinked and Now Some Hope, But a New Problem and It’s Big

So, once again, time for Dechert’s acclaimed (at least by us) Annual Golden Turkey Awards.  It is rather a difficult time for comedy; we are in the throes of a completely unfunny pandemic.  Sitting down to finalize this year’s list gave me some sympathy for our late-night talk show hosts who are very publicly pining over the end of the Trump administration and trying to find humor in the anticipated Biden administration, where the watchword is “dull is cool.”  But perhaps looking for inanity and making gentle fun of it might even be more important in tough times than good.  So, with that in mind, we went digging for gems in 2020.  Nothing seems quite so risible as in past years, but here’s the best of a bad lot:Continue Reading 2020 Golden Turkey Awards

In the fourth installment of our new LIBORcast program, Matthew Hays and Jonathan Gaynor discussed interest rate caps, derivatives and value transfer with Chatham Financial’s Rob Mangrelli and Matt Hoffman.  Tune in to hear about the cost of a SOFR interest rate cap, adoption of the ISDA protocol and rate fragmentation in the post-LIBOR market.…

Regulators have been increasing their scrutiny of LIBOR transition efforts as they ramp up messaging stressing that the time to act is now.   The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a National Exam Program Risk Alert to introduce a LIBOR Examination Initiative on the upcoming discontinuation of, and transition…