LIBOR transition in the midst of Covid-19

27 March 2020

Recent focus of market participants in the debt markets has rightly been on both the immediate liquidity issues faced by businesses in the UK caused by the Covid-19 pandemic and the health and wellbeing of colleagues and family.

Whilst the attention of the loan markets has been on liquidity, the FCA and Bank of England this week issued a warning to firms not to lose sight of their preparations for LIBOR transition.

They accept that the recent disruption is likely to affect some of the interim transition milestones, however they have said that many preparations for transition will be able to continue, warning that firms cannot rely on LIBOR being published after the end of 2021.

On 16 January 2020, the Bank of England and the FCA’s working group published their key priorities, which included the target of ceasing the issuance of cash products (including loan products) linked to sterling LIBOR by the end of Q3 2020. It seems probable that this interim milestone may not to be met.

This message to firms may be disappointing to those hopeful that the end of 2021 deadline set by the working group would be extended and allow breathing space for firms who have been focusing their resources and time elsewhere.

As we have previously mentioned in our ‘Cost of funds for credit funds?’ blog, some reports state that there is in excess of a trillion pounds worth of legacy loan documentation, which will all require amendment within the next 21 months.

The working group will continue to monitor and assess the impact on transition timelines and will update the market accordingly. However, for now, firms are encouraged to proceed with their LIBOR transition plans.

If you would like to read more, previous thinking on this matter can be seen in our recent articles ‘The FCA’s Dear CEO LIBOR letter: a call to action for asset managers’ and ‘Leaving LIBOR: Lenders in transition’.

"The central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed and end-2021 should remain the target date for all firms to meet."