Many in the debt capital markets hold the view that the development of a forward-looking term structure for a replacement reference rate is fundamental to the transition away from LIBOR. However, recent debt issuances from the European Investment Bank (£1B SONIA-linked), Fannie Mae ($6B SOFR-linked), World Bank ($1B SOFR-linked) and others have been able to be executed with resets in arrears.
LIBOR’s discontinuation is no longer being communicated as a possibility, but rather an eventual probability. As a result, market participants must prepare accordingly for such cessation. Organizations will need to demonstrate to their regulators, customers and counterparties that they have plans in place to mitigate risks and to remove dependencies on LIBOR past 2021.