SOFR

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As I was saying in my last commentary, it’s time to stay calm and carry on in a market that is flashing green, red and yellow signals simultaneously.  These are market conditions in which nimbleness will be rewarded.  Whether the economy is going to continue to grow, albeit in a very low gear, or whether we’re going to have a recession of one species or another, things are not soon going to return to the BEFORE.
Continue Reading Get Ready for the Distressed Debt Wave (HONEST!)

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?

It’s a rule around here that I don’t write on the same topic twice in a row because if you don’t get bored, I will.  I am making an exception this week to revisit last week’s blog about the industry’s failure to take on, or at least discuss, the considerable negative externalities of transferring our entire business from LIBOR to SOFR while we have time.  The problem, of course, and I recommend last week’s commentary for a more fulsome discussion (or screed), is that we are barreling toward a world in which trillions of dollars of floating rate debt will be based on an index that is not credit-sensitive and which may (and likely will) cause a transfer of value from the providers of capital to the users of capital.
Continue Reading It’s Time for The Industry to Engage on SOFR’s Voldemort Problem

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

My, my, my! Another governmental red line looks to be breached; at least this time no one gets hurt. We, at CrunchedCredit, have in some sense been carrying the government’s water about LIBOR transitions. We have been talking about how to prepare for transition, how to move current loan production onto a sound non-LIBOR basis and how to address legacy assets. In other words, we had taken seriously the warnings of the FCA and the Fed, as well as others upon the regulatory heights who assured us that the LIBOR transition would arrive in early 2022. While we had heard stray musings from the regulatory establishment throughout, we all took on board the assurances from the regulatory doyens and rebroadcast their message, that everyone’s “central assumption” should be that they “cannot rely on LIBOR being published after the end of 2021.”

I gotta tell you, I feel a little bit like Charlie Brown with the government playing Lucy.Continue Reading LIBOR: They Blinked!