The direct impacts of the transition away from LIBOR to the use of an alternative reference rate such as the Secured Overnight Financing Rate (SOFR) have been well publicized. ISDA and ARRC have been releasing regular updates and suggested fallback language to determine how LIBOR rates will be replaced in derivative and loan agreements, once LIBOR is no longer available.
While the derivatives market had been changing fairly rapidly prior to COVID-19, 2020 market dynamics have not closed the gap between expected and observed market prices. It’s critical that corporations and institutions address the coming reference rate changes related to their derivatives and debt instruments tied to LIBOR.
As many of our readers already know, SOFR (Secured Overnight Financing Rate) has been selected by the Alternative Reference Rates Committee of the Federal Reserve to replace LIBOR in 2021.
In this video, Ruth Hardie, senior director of client services, provides an overview of what you can expect from interest rate swaps given the current large drop in rates.
On Sunday afternoon, the Federal Open Market Committee (FOMC) reduced its target rate by 100bps to a range of 0-0.25%.
Many companies will be affected by a global pandemic (should it come to fruition)—and a number are already being affected just by the containment efforts.