WASHINGTON–Progress away from the once nearly ubiquitous LIBOR standard for setting rates, which is set to cease operations as of June 30, is “progressing smoothly,” according to a new report.
The same report added, however, that concerns remain over how syndicated loans might be affected by the transition.
According to the Alternative Reference Rate Committee (ARRC), which is sponsored by the Federal Reserve, momentum continues toward adoption of the alternative it created to the London Interbank Offered Rate (LIBOR)--the Secured Overnight Financing Rate (SOFR).
The move away from LIBOR, which was created by the British Bankers Association in 1986, followed years of discussion and is being made because it may no longer be relied upon to reflect current market conditions. SOFR was developed as a market condition-reflective vehicle to be a long-term replacement for LIBOR.
Issue of Concern
The issue of concern, according to the ARRC, is that some financial products have been pegged to LIBOR for as long as 37 years, which has created a few challenging situations, including the need for efforts to “remediate syndicated loans to accelerate.”
Investors are being urged to “remediate LIBOR loans and ensure that borrowers and lenders are actively and cooperatively involved in doing so.”
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