A World After LIBOR

A World After LIBORA World After LIBOR

The imminent transition away from LIBOR (London Interbank Offered Rate) to new risk-free rates (RFRs) has the potential to be a highly disruptive event in lending markets. Trillions of dollars of instruments are priced using the rate – and the administrative burden of referencing both LIBOR and other rates during the transition is just one of the issues with which lenders will have to grapple.

The new RFRs, of which there are many, will likely be rolled out in an uncoordinated manner, and there are complexities around terms and interest calculations. New rates may also necessitate dynamic credit spread adjustments, which can be difficult to manage operationally. There are issues around accommodating multiple currencies, the need for new fallback language – and an imperative for careful communication with clients as each loan agreement linked to LIBOR needs to be redrafted.

As the leading provider of the technology that governs the servicing of syndicated loans,
Finastra is working with clients to ensure they are prepared. For example, we are actively assessing how Fusion Loan IQ solution will manage multiple rates and terms, while helping borrowers and lenders communicate more effectively. We are also working with the industry to evaluate and manage the impacts of the many changes that the shift to
RFRs introduces.

Regulators worldwide are actively sponsoring the various working groups set up to oversee the transition to RFRs. And firms are taking proactive steps to make the necessary changes before LIBOR ends. However, there is no question that institutions need all the support they can get in their efforts to minimize the disruption this change presents.