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Basis Points: LIBOR / SOFR Update

By: Brandon Lippold, Assistant Vice President


Since Blue Rose’s last update on the transition from LIBOR to SOFR  the ARRC continues to push forward in meeting milestones laid out in its paced transition plan. Below are a few notable updates:

  • The market turmoil experienced over the last 6 months related to the COVID-19 pandemic has impacted SOFR issuance, just as it has impacted the issuance of securities in general. However, this hasn’t meant a change in the timeline outlined by the ARRC, with the final cessation of LIBOR still scheduled for December 2021.

  • ISDA language is anticipated to release soon. Importantly, this will include a new protocol with official fallback language, with an official LIBOR-SOFR fallback spread and its methodology for publication (expected to be a publicly available figure). 

  • A significant upcoming milestone is nearing. The shift in discounting from Fed Funds to SOFR is scheduled to occur on October 16 of this year.  This will take place for all cleared swaps on the Chicago Mercantile Exchange and the London Clearing House.  The participants will settle on that date for any deviations in valuation from the change in discounting curve. This will not apply to non-cleared swaps (over the counter transactions), which are the norm for most of our clients.

  • While UK law addresses the concept of a fallback index upon a determination that an index is no longer representative, US law and NY law, in particular, are still relatively silent. The ARRC is working with the New York State legislature to adopt fair and equitable legislation for financial products that reference LIBOR but do not contain a fallback index provision.

  • SOFR options will have market makers by the end of this year.

As always, the best source for the most up-to-date information regarding the transition from LIBOR to SOFR is the ARRC website, or by reaching out to your financial advisor.

About the Author:


Brandon Lippold, Assistant Vice President

Assistant Vice President 

blippold@blueroseadvisors.com


Brandon Lippold joined Blue Rose in 2018 as a Quantitative Analyst, providing modeling, analytics, market data, and research in support of the delivery of capital planning, debt and derivatives advisory, and reinvestment services to our clients. In his role of Associate, he utilized his experience as a Quantitative Analyst in a more client-facing role, while still performing much of the analysis utilized in this capacity. Mr. Lippold holds a bachelor’s degree in financial management from the University of St. Thomasand is a member of their chapter of the Delta Epsilon Sigma honors society. Mr. Lippold passed the MSRB Series 50 Examination to become a qualified municipal advisor representative and also is currently pursuing his Chartered Alternative Investment Analyst (CAIA) designation, for which he has passed the level 1 exam.

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Blue Rose Capital Advisors is an independent financial advisory firm that does not engage in underwriting activities. We are registered with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) as a Municipal Advisor. Because we have not engaged in underwriting activities in our history, we generally qualify as an Independent Registered Municipal Advisor (IRMA).