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The salient info buried at the end: "Libor is survived by several successors, each making a claim to its crown. The Secured Overnight Financing Rate, or SOFR —
by r00fus 5y ago
The salient info buried at the end:
"Libor is survived by several successors, each making a claim to its crown.
The Secured Overnight Financing Rate, or SOFR — a rate produced by the Federal Reserve Bank of New York that is based on transaction data, not estimates — has already been embraced by many banks in the United States and has the endorsement of the Fed. Others, like the American Interbank Offered Rate, or Ameribor, and the Bloomberg Short-Term Bank Yield Index, or BSBY, have their adherents. In Britain, the Sterling Overnight Index Average, or SONIA, seeks to inherit Libor’s place as the do-it-all benchmark."
My only remaining question is, since we used to have a single reference rate, and now we have multiple reference rates - how does this impact existing contracts?
- mathattack 5y agoThe article references that existing contracts will stay on LIBOR. It’s only dead for new deals.
- Havoc 5y agoFor any new lending the contracts get replaced with new ones referencing Sonia. Even existing debt facilities that get drawn down - the banks don’t want more lending under libor. It’s a pretty painless substitution though
- riskneutral 5y ago> how does this impact existing contracts? This has kept lawyers busy for past the few years. The "LIBOR fallback language" was created and then inserted into existing contracts, to address this question. It's like a pull request for a patch. Most of the legacy contracts out there have been "patched" with the "fallback language" at this point, and as of Jan 1, 2022, no new LIBOR contracts are allowed.