LIBOR Updates

Stay Abreast of LIBOR Developments with AFS

The mandate that banks transition from their current use of LIBOR to the new daily rate approach SOFR by the end of 2021 has caused some upheaval in the industry. There are a lot of questions surrounding preparedness, system compatibility, and how SOFR will be calculated. 
As an active member of the ARRC Business Loan Working Group concerning the upcoming LIBOR transition, AFS is in a unique position to provide the latest updates on transition activities. Here, we provide answers to the some frequently asked questions, offer resources, and provide the opportunity to sign up for the AFS LIBOR Update email list.

LIfe with SOFR: The Best Practices Leadership Council Presents the Following LIBOR Transition Update

Frequently Asked Questions

When is LIBOR Going to end?
Financial Conduct Authority (FCA) sought voluntary agreements with the panel banks to continue their submissions through the end of 2021. Beyond 2021, LIBOR may still be published for some time, but the production of LIBOR is not guaranteed.

What Rate is replacing LIBOR?
The Alternative Reference Rates Committee (ARRC) selected the Secured Overnight Financing Rate (SOFR) as the recommended benchmark interest rate to be used in place of USD LIBOR. SOFR is an overnight, secured rate based on actual transactions in the repo market. It is considered to be risk free because its underlying transactions used to calculate the rate are secured by U.S. Treasury securities. 

NEW: Are AFSVision and AFS Level III currently capable of supporting the transition?
As of December 2019, AFSVision and AFS Level III support three of the four SOFR methods (Compounded in Advance, Forward-Term SOFR, and Simple Daily SOFR in Arrears). Code delivery for both systems for Compounding in Arrears is scheduled for end of 2Q2020/beginning of 3Q2020, dependent on ARRC finalization of this method.

NEW: When does AFS anticipate providing the LIBOR Transition Change (Requirements) Documentation?   
Code and user guides for the first three SOFR calculation methods were delivered to all clients in December. Compounding in Arrears is scheduled for end of 2Q2020/beginning of 3Q2020, dependent on ARRC finalization of this method.

What does AFS perceive as its biggest challenge with the LIBOR Transition? 
Supporting the operationalizing of SOFR Compounding in Arrears Interest Convention; however, we are confident that we can do so.

Does AFS offer any custom LIBOR Transition support?   
Yes, please contact Dean Snyder at DSnyder@afsvision.com or your RM to review your requirements.

Is there a timeline for the transition?
AARC has published a Paced Transition Plan that includes specific steps and timelines designed to encourage adoption of SOFR. 

What are the four SOFR rate conventions under discussion?
They are the Forward-Looking Term SOFR, SOFR Rate Compounded in Advance, SOFR Compounded in Arrears, and Simple Daily SOFR in Arrears.

NEW: When will the SOFR rates be published?
The ARRC published its consultation on the spread adjustment methodologies in SOFR and is seeking comments from banks by March 6 to the ARRC Secretariat (arrc@ny.frb.org).

Be Prepared 

Here are a few examples of questions/key areas to address as you prepare for the transition.

• Where is the Impact? – Identify your LIBOR positions (exposure) within all operation systems.
• Treasury Pricing – Define and clarify replacement rates that require adjustments.
• Documentation – Identify and review all documentation for loans maturing after December 31, 2021.
• Operational Readiness – Plan (testing) for the operation fallbacks to the new rate(s).

If you have any LIBOR transition questions or concerns, please contact Dean Snyder at DSnyder@afsvision.com.