Steps underway now and plans going forward to move to new rates or to update fallback language in a reference rate that goes out of existence next summer are the subject of a survey being sent to borrowers and lenders, according to a Federal Reserve-sponsored group.
The Alternative Reference Rates Committee (ARRC), a group set up by the Federal Reserve and the Federal Reserve Bank of New York to help make the transition away from the now-defunct London Interbank Offered Rate (LIBOR), said its survey seeks plans from lenders and borrowers on how they plan to address loans ahead of the absolute end of the reference rate on June 30, 2023. After that date, LIBOR may no longer be used for legacy contracts. LIBOR officially went defunct for new contracts (including loans) on Jan. 1.
The ARRC said it has encouraged movement to new rates ahead of the LIBOR cessation in June and stressed the operational challenges involved in attempting to transition a large number of contracts after the LIBOR cessation date. “The survey is being issued to assist the ARRC and market participants in assessing LIBOR transition readiness and the need to address any potential operational issues involved,” the group said.
Areas of the survey include questions for agents and bilateral lenders, lenders in a syndicate, and borrowers. The survey is in the form of a spreadsheet: respondents are asked to enter their responses into the spreadsheet and to submit the spreadsheet by email to the ARRC by Sept. 7.
The ARRC said individual firms’ responses will be maintained as confidential, and the survey results will be aggregated and anonymized prior to being published in order to preserve that confidentiality.
The committee, which developed an alternative rate to LIBOR (the secured overnight financing rate, SOFR), said in a statement that it has seen new loan activity “convincingly move to SOFR” this year, “but there is a large number of legacy LIBOR loans that still need to be addressed.”
The survey, the ARRC indicated, is to promote understanding of market participants’ plans to remediate these loans, which the group said “will be key to assessing how ready the loan market really is.”