Consultation on successor rate in legacy bonds referencing GBP LIBOR

The Working Group on Sterling Risk Free Rates has published a consultation paper seeking feedback on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds upon the occurrence of a permanent cessation event or a pre-cessation event, and to seek feedback on the successor rate to be recommended.

The consultation paper is addressed to bond market participants who are considering the operation of fallbacks in their contracts which will be triggered in the event of the permanent cessation of GBP LIBOR (a “permanent cessation event”), or on an announcement of the non-representativeness of GBP LIBOR by the supervisor of the administrator of LIBOR (a “pre-cessation event”).

Certain types of fallbacks provide that upon the occurrence of a permanent cessation event or a pre-cessation event, an issuer would appoint an independent adviser to select (or to advise the issuer in the selection of) (a) a successor rate and (b) a credit adjustment spread to be applied to such a successor rate, in each case on the basis of (i) any formal recommendations made by a relevant nominating body or (ii) if no such recommendations have been made, customary market practice.

Subject to its consideration of the feedback received pursuant to the consultation paper and any other relevant factors, the Working Group expects to recommend a fallback successor rate for use in the bond market upon the occurrence of a permanent cessation event, or upon the occurrence of a pre-cessation event, which will ultimately assist the objective of the Working Group of facilitating a smooth transition away from GBP LIBOR to SONIA.

The Consultation Paper will remain open until 16 March 2021.


Emma Radmore