GTreasury Logo
Back to Blog

SOFR Readiness Checklist: Time to Act

When the groundwork for LIBOR discontinuance was first laid by the FCA, IBA and ISDA, there was no immediate impact on LIBOR-based investments, debt or swaps.

This is no longer true. Your investments, debt or swaps are going to change soon.

With the transition from LIBOR in full swing, the time to act is now. New transactions starting in January 2022 will not be based on LIBOR. Some financial institutions are using SOFR, but there are other reference rates being used, causing market confusion and changing risk profiles. 

This is no longer about getting ready. It’s about taking the next step. Follow this checklist to make sure you stay on track.

SOFR Readiness Checklist

Have you established a Transition Management Protocol?

    • Educate yourself and make sure your company knows what’s going on.
    • Communicate with management.

Have you identified and validated your company wide LIBOR exposure across asset classes?

    • Check Fallback Provisions on: Debt, Swaps, Leases, Accounts Receivables, Transfer Pricing Contracts, Credit Facilities and More.

Have you assessed contractual remediation and fall back provisions?

    • What rates do your contracts use if LIBOR goes away?
    • Some say fall back rates could be as high as 15%. What are yours?

Evaluate impact on hedge accounting and reporting

    • Hedges and debt may have different reference index rates post LIBOR, which could lead to a loss of special hedge accounting.
    • Even if hedge accounting works, it is important to look at the economics of the hedge relationship to ensure it achieves the objectives intended.
    • Hedges and debt may transition in different periods (or even years). How do you plan to keep them aligned?
    • Have you determined how and when you will report impacts in your financial statement footnotes?

Have you contacted your counter parties?

    • Negotiate away adverse fall back provisions now. In this case, an ounce of prevention could prevent significant costs.
    • What transition timing are your counterparties proposing?
    • What replacement rates will your counterparties be offering for both the debt side and the derivative side starting in 2022?

The time to act is now. As the market continues to evolve, please reach out to our team for answers to questions or help with next steps. 

Subscribe to Our Newsletter

Stay in the know: Get the latest on our events, digital trends and how they are impacting your industry, and what it means for the future of business.