KBRA Releases Research Report on the Discontinuation of LIBOR

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Kroll Bond Rating Agency (KBRA) has released a new Structured Finance research report titled “LIBOR No More – Alternative & Consequences for the ABS Market.” The report makes the following key points:

  • The U.K. Financial Conduct Authority (FCA) announced in July that LIBOR will be phased out by year end 2021. This will have far reaching implications across the credit markets as many derivative contracts, corporate bonds, syndicated loans, mortgages, and securitizations reference this benchmark.
  • Given the shorter-term nature of the ABS market, much of the current outstanding floating rate debt will be paid off by the end of 2021; however, for some asset classes with longer terms, such as student loan ABS, the related bonds may still be outstanding.
  • Until a new market accepted successor rate has been identified, there are changes that could be made in new securitization documentation in the interim to address the anticipated phaseout. However, the impact on legacy securitizations could be much more problematic, particularly where the transaction documentation did not contemplate an alternative benchmark.
  • To the extent they have not already begun to do so, issuers should start incorporating provisions into their documents that provide flexibility in switching to an alternative benchmark in the absence of LIBOR. Likewise, investors should assess documentation when looking at new floating rate deals and also inquire about provisions in legacy floating rate securitizations that are likely to be outstanding past 2021.

To read the report, please click here.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

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Business Wire: 12:30 GMT Monday 6th November 2017

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