As the end of Q1 2021 draws closer, the Working Group on Sterling Risk-Free Reference Rates (the Working Group) published a Q&A that aims to address the end-Q1 milestone for no new GBP LIBOR lending and a best practice guide for GBP referencing loans (the Best Practice Guide) on February 26, 2021.
As discussed in our previous blog post (which can be found here), the Working Group recommended that market participants should not initiate new GBP LIBOR referencing loan products expiring post 2021, after the end of Q1 2021. The Q&A has been prepared to highlight considerations that market participants should take into account and addresses important questions in relation to the end-Q1 milestone.
Among others, the Q&A addresses the following questions:
- should rate switch agreements be executed beyond end-Q1
- who is responsible for meeting the end-Q1 milestone
- what happens if borrowers or syndicate members are not ready for SONIA
- what should be the approach for multicurrency facilities if certain rates are term rates and/or have different cessation timelines
The Best Practice Guide is a helpful tool for market participants as it consolidates relevant information from previous Working Group publications to provide a single reference point for best practices for GBP loans maturing after the end of 2021. It covers best practices in relation to conventions for new SONIA referencing loans (including refinancing and renewals) and for the transition of legacy GBP LIBOR referencing loans. Market participants are encouraged to use the Best Practice Guide to ensure faster adoption of SONIA and that they meet the Working Group’s milestones.
The Best Practice Guide is intended to cover bilateral and syndicated GBP loans. The key focus for syndicates should be to minimize frictions caused by differences in practices and system capabilities across syndicate members. The conventions set out in the Best Practice Guide should be the starting position for this and the current LMA RFR documentation aligns to these conventions. The Best Practice Guide also sets out guidance on roles for market participants including borrowers, lenders, agents, lead/co-ordinating banks and advisers/sponsors in the transition process.
Market participants are reminded of the Working Group’s key milestones for 2021:
- End-Q1 2021 targets: Market participants should cease initiating new GBP LIBOR referencing products that expire after the end of 2021 and identify all legacy GBP LIBOR contracts expiring after the end of 2021.
- End-Q2 2021 target: The active conversion of all legacy GBP LIBOR contracts expiring after end 2021, where viable, should be progressed. Where such conversion is not viable, robust fallbacks should be adopted where possible.
- End-Q3 2021 target: The active conversion of all legacy GBP LIBOR contracts should be completed where viable and, if not viable, ensure robust fallbacks are adopted where possible.
- End-Q4 2021 target: Market participants should be fully prepared for the end of GBP LIBOR.
Market participants are encouraged to actively review the Q&A and Best Practice Guide as part of their LIBOR transition plans.
Please contact any of the authors of this briefing or your regular McGuireWoods contact if you have questions about, or would like assistance with, the LIBOR transition.