Skip to main content
Bank of England pictured at a low angle against blue sky with clouds
Article

GBP LIBOR transition market brief — Q3 2020

Date:
August 28, 2020
  • joshua roberts headshot

    Authors

    Joshua Roberts

    Associate Director
    Hedging and Capital Markets

    Private Equity | London

Summary

Chatham's update on the GBP LIBOR transition, summarizing upcoming deadlines, recent news, and available resources to help you stay current as the market transitions away from LIBOR.

With all that’s happening in the market, it can be difficult to stay up to date with the London Inter-Bank Offered Rate (LIBOR) transition. To assist you, we’ve prepared this summary of upcoming deadlines, along with some of the most significant news from the last quarter.

Upcoming deadlines in the LIBOR transition to SONIA

Upcoming deadlines in the LIBOR transition through the end of Q4 2020.

Transition timing, changes to interim deadlines, and proposed legislation

Even amidst the global COVID-19 pandemic, regulators and other market participants have continued to lay out transition plans; indicating that they plan to stick to the ultimate deadline of 31 December 2021 for the LIBOR transition. Edwin Schooling Latter, head of markets and wholesale policy with the UK Financial Conduct Authority (FCA), even suggested that regulators could make an announcement as soon as the end of 2020 regarding the date of LIBOR’s discontinuation — presumably after 31 December 2021.

Deadlines extended in the LIBOR transition to SONIA

Two deadlines in the LIBOR transition have been extended due to COVID-19.

However, we have seen changes to certain interim deadlines. Most significantly, in April, the FCA and the Bank of England (BoE) announced a six-month extension of UK lenders’ deadline to cease issuing GBP LIBOR-based loans, extending the cutoff from 30 September 2020 to 31 March 2021.

In addition, on 28 July, the BoE’s Working Group on Sterling Risk-Free Reference Rates released the third update to their road map, where they:

  • indicated that they expect live term SONIA rates by the end of 2020, rather than in Q3 as previously expected
  • provided guidance that conversion of legacy bonds and loans has been delayed until the end of Q3 2020, having previously been expected at the end of Q2
  • announced the publication of a road map for transitioning issuance of new loans to SONIA, expected at the end of Q3 2021
  • reminded financial institutions that the Working Group expects them to complete assessment of their existing books of LIBOR-linked loans by Q1 2021
  • established a new deadline of Q2/Q3 2021 for cessation of new issuance of GBP LIBOR linked non-linear and cross-currency derivatives maturing beyond 2021

On 23 June, the UK Government published a proposal to give the FCA additional powers related to the transition. This included the ability to change the methodology used to calculate LIBOR, during its wind down, in narrowly defined tough legacy contracts.

Chatham recommends that market participants continue to prepare for transition as though there will be no easing of the current timetable as laid out here.

Resources


Speak to a Chatham expert

Please reach out to the Chatham team if you have questions about how the LIBOR transition could impact your loans and derivatives.

About the author

  • Joshua Roberts

    Associate Director
    Hedging and Capital Markets

    Private Equity | London


Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.

20-0329