Get a move on in scrapping Libor, UK asset managers tell issuers

Britain’s asset managers have called on companies to “step up” efforts to agree a new benchmark for pricing bonds worth about 108 billion pounds ($147.38 billion), to avoid ending up in legal limbo when Libor is scrapped at the end of the year.

Not moving outstanding corporate bonds to an alternative reference interest rate risks “significant market disruption”, Galina Dimitrova, the Investment Association’s director of investments and capital markets, said in a letter to issuers.

The London Interbank Offered Rate will be replaced in Britain with a “risk-free” Sonia overnight rate compiled by the Bank of England. New bonds issues are already being priced off Sonia.

Dimitrova said investment managers had already worked with many companies to agree a fair transition for their Libor-linked bonds, adding: “The IA’s members are also willing to consider alternative arrangements with companies, such as buybacks.”

Libor is being scrapped after banks were fined for trying to rig what was once dubbed the world’s most important number. Regulators are keen to avoid contracts being left in legal limbo if they have not been converted by Dec. 31.

In a joint statement with the IA, Britain’s Financial Conduct Authority said a “mutually agreed” switch from Libor to another rate was in line with industry recommendations on fair arrangements.

“It also allows conversion to the market standard of the risk-free rate compounded in arrears that has now developed in bond markets – an advantage which synthetic Libor cannot provide,” Edwin Schooling Latter, the FCA’s director of markets and wholesale policy, said.

Schooling Latter has already warned that a synthetic or hybrid-style Libor for outstanding contracts after December would only be for a narrow range of specific contracts.