Asset managers call for urgent action on Libor transition
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Investment managers are calling on FTSE 350 companies to “step up” their efforts to transition away from Libor-linked bonds worth £108bn.
“With the deadline now fast-approaching, there remains a significant number of outstanding Libor-linked bonds which have not yet transitioned to a new rate,” The Investment Association (IA) said in a letter to companies issuing the bonds.
The London Interbank Offered Rate is being scrapped at the end of hte year and will largely be replaced in Britain with a rate compiled by the Bank of England.
If companies continue to reference a non-representative rate after this deadline, the IA has warned of “significant market disruption and harm to investors”.
“Time is running out for companies to transition their LIBOR-linked bonds. Companies that have yet to do so must now take urgent action to ensure their bonds are LIBOR free by the end of 2021,” the IA’s director for investments and capital markets Galina Dimitrova said.
The Financial Conduct Authority (FCA) and BoE have already set out their expectations for regulated firms to move away from Libor in all new business and legacy contracts where possible.
“The FCA welcomes the IA’s initiative to help issuers of LIBOR securities reach out to IA members who hold their bonds to agree conversion through consent solicitation,” Edwin Schooling Latter, Director Markets and Wholesale Policy at the FCA, said.
“Mutually agreed conversion from LIBOR to risk free rates plus spreads consistent with industry recommendations on fair transition arrangements can enable both the bond’s issuer and holders to avoid the uncertainty they will face upon LIBOR’s proposed cessation.”
“It also allows conversion to the market standard of the RFR compounded in arrears that has now developed in bond markets – an advantage which synthetic LIBOR cannot provide.”