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Most treasurers will be aware that the availability of LIBOR cannot be relied on beyond the end of 2021 and that LIBOR rates will be replaced, in most instances, by risk-free rates (RFRs). RFRs are available in all five LIBOR currencies (as well as a number of others), but relatively few businesses have taken steps towards using them. This will change in the very near future.
Aims and scope of this guide
Much of the information on LIBOR transition is detailed, technical and not available from a single source. The aim of this guide is to provide a starting point for finance and treasury teams transitioning LIBOR-referencing financial products to alternative rates.
The guide contains an overview of the key issues for users of loans, derivatives and other products - replacement rate options, calculation conventions and market documentation - alongside links to sources of further information. It also aims to give a practical steer on how treasurers might approach some of the open issues that will need to be determined on a case-by-case basis. It is structured as follows:
- Section 2 is a checklist of action points for treasurers
- Section 3 contains a timeline highlighting the key milestones to be aware of between now and the end of 2021
- Section 4 summarises “LIBOR transition essentials” – background information about the LIBOR transition project, alternative rates and key concepts
- Sections 5-8 outline the approach to replacement rates and documentation for loans (Section 5), derivatives (Section 6), bonds (Section 7) and non-financial products (Section 8) and some of the key discussion points
- Section 9 contains links to further information and resources and
- Section 10, key contacts at the Association of Corporate Treasurers (ACT) and Slaughter and May.
The guide highlights the solutions that have developed for certain LIBOR products from a legal and documentation perspective. Treasurers will also need to consider broader operational issues relating to LIBOR transition; the updating of systems and market infrastructure to accommodate replacement rates as well as the accounting and tax implications of a move from LIBOR to alternative rates.