With less than 3 months to go before the cessation of USD LIBOR, as anticipated in the November 2022 consultation (CP22/21: Consultation on 'synthetic' US dollar LIBOR and feedback to CP22/11 (fca.org.uk)) issued by the UK's Financial Conduct Authority (FCA), we now have confirmation on the continued publication of the 1-, 3- and 6-month US dollar LIBOR settings post June 2023 through to 30 September 2024.
As expected the synthetic USD LIBOR will be unrepresentative and will be based on CME Term SOFR rates plus the ISDA fixed credit adjustment spreads issued by Bloomberg.
No surprises in the announcement - no new use of LIBOR is permitted and general use of the synthetic rates for legacy transactions is permitted other than in relation to cleared derivatives.
Importantly, the FCA confirmed that firms must continue to actively transition contracts that reference US dollar LIBOR and they continue to expect firms to take action and deliver demonstrable progress on the basis that synthetic LIBOR is only a temporary bridge, and synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.
We welcome the clarity provided to the market regarding the end date of the synthetic rate - meaning that tough legacy contracts get some breathing room but only for a limited period. Work on transition will have to continue and kicking the can down the road now has an absolute time limit.
In line with what we are seeing in the market, efforts to transition existing loans are building and we are seeing a marked increase in the volume of deals at each stage of the amendment process. Let's use this announcement to speed up progress and let's get amending.
The FCA announcement can be found here - FCA announces decision on synthetic US dollar LIBOR | FCA
The FCA says that "unless unforeseen and material events were to happen, we expect to follow the direction and timeline we have indicated. We consider providing early notice of this is helpful for market participants."
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