FCA Encourages Transition of Outstanding LIBOR-Linked Bonds to Fair Alternative Rates

The United Kingdom's Financial Conduct Authority (FCA) has issued a statement for issuers and bondholders of outstanding LIBOR-linked bonds, strongly encouraging them to take the necessary action to transition outstanding LIBOR-linked bonds to fair alternative rates.

Many legacy LIBOR-linked bonds (including securitisations and other similar structures) have now been converted by mutual agreement of issuer and bondholders to Risk-Free Rates (RFRs) through processes such as consent solicitation.

FCA encourages issuers of the remaining LIBOR-linked bonds (or those that may have a future LIBOR-linked dependency) issued under English or other non-US laws which make consent solicitation practicable, to schedule consent solicitation processes for conversion to fair alternative rates.

It also encourages holders of bonds without robust fallbacks or another mechanism to remove reliance on LIBOR, to engage with the relevant issuer(s) or their agent(s) and request that they initiate these conversion processes.

Some issuers and bondholders have benefitted from the temporary continued publication of the 1-, 3- and 6-month sterling and yen LIBOR settings using a 'synthetic' methodology. The FCA required publication of these synthetic LIBOR rates to avoid a cliff edge at the end of 2021. This has given issuers more time to arrange transition to more robust alternative rates. 

However, publication of synthetic yen LIBOR will cease at the end of 2022. FCA has proposed to cease the requirement to continue publication of the 1- and 6-month synthetic sterling LIBOR settings at the end of March 2023. It has also sought views on the earliest date at which the 3-month sterling LIBOR setting could also cease in an orderly fashion. 

"Publication of synthetic LIBOR settings will be for a temporary period only, and relying on such publication is therefore not an alternative to agreeing conversion through consent solicitation, or other arrangements for longer-maturity bonds,"FCA said.