The Loan Market Association (LMA) chaired a packed evening seminar last night discussing the implications of phasing out LIBOR and the progress made so far. On the panel was Sarah Boyce, an associate director at the Association of Corporate Treasurers, Harriet Hunnable, Manager of Benchmarks Policy at the Financial Conduct Authority, Andrew Hill, Head of Wholesale Portfolio Management at HSBC, David Campbell, a partner in the Banking Practice at A&O and Steve Bullock, Head of Benchmark Submission and Supervision at Lloyds Banking Group.
It was acknowledged that while SONIA is a good replacement for LIBOR for some participants, in particular those in the derivatives market, others, including those involved in syndicated loans, needed a forward looking term benchmark for cash flow forecasting and liquidity planning. The panel discussed progress of the term rate subgroup, which is looking at a suitable forward looking benchmark to replace LIBOR. This subgroup is due to publish a white paper shortly looking in detail which areas of market need this kind of benchmark and will invite market participants to respond to the points raised. Discussions also covered the concerns amongst lenders that involvement in working groups and discussion with other lenders in the market may lead to them inadvertently breaching competition law. No final conclusions were drawn but it was suggested that keeping the discussions and conclusions as open as possible should help address these concerns.
The difficulties of implementing a ‘synthetic LIBOR’ were also discussed, in particular the challenges of making it sufficiently robust, though Harriet Hunnable made the point that use of such a benchmark would be an absolute last resort and available only to legacy contracts where amendment wasn’t possible.
A point of great interest to both borrowers and lenders is of course what provision the market should be making in documentation, both in new documents and in terms of amendments to existing documents. Chair Kam Mahil of the LMA revealed that the LMA is about to publish new Replacement of Screen Rate wording, allowing amendments connected with the discontinuation of a benchmark to require majority lender consent only. The panel were in agreement that additional amendments to documents are not needed at this stage, though Sarah Boyce commented that participants could consider what could replace LIBOR in other types of clauses that reference LIBOR, eg penalty clauses.
The whole seminar was filmed and will be published onto the LMA website, available to members of the LMA.