Are you ready for IBOR transition?
What is happening?
- IBORs (Inter-Bank Offered Rates) are widely used benchmarks for loans, derivatives, intercompany loans & external contracts
- Post December 2021, IBORs will be replaced by daily risk free rates, published by central authorities
- Existing loan and derivative agreements will need to be amended to avoid higher interest cost
- Default transition language for loans and derivatives may not be the same
Why should you take action now?
- Failure to renegotiate IBOR referenced contracts prior to the Dec 2021 will risk the imposition of sub-optimal remedies
- Loss of negotiating leverage and ability to achieve best terms, once fall back protocols enacted
- Bank resourcing immediately prior to the Dec 2021 will be severely constrained, limiting their capacity to bi-laterally negotiate
- Your resource will be constrained when simultaneously negotiating with multiple stake holders
How will this impact you?
- All external and internal IBOR refenced contracts will require amendment / renegotiation
- Don’t assume solution for loans and derivatives are the same
- Risk of material adverse value transfer
- Interest payment amounts will only be known 2-5 days prior to payment dates, creating future cashflow uncertainty
- All hedge designation memos and relationships will require amendment and approval by auditors
- Negotiation approach must be determined now to avoid fallback solutions and achieve best terms
- No single location will exist to find the interest rate applicable to your interest payment
- Internal systems and processes will need to be updated and staff trained
What do you need to do?
It is essential to understand the implications and begin transition preparations now
Regulators are encouraging agreements to be in place prior to Dec ‘21
- Create transition plan. PMC can draft board paper to identify IBOR risk / threat and recommend a transition strategy
- Identify IBOR contracts. PMC can help you identify & review all IBOR referenced loans and contracts, including intercompany implications
- Identify system changes. PMC can help you identify the Internal system and process changes required to administer the transition
- Protect economic value impact. PMC can provide independent & impartial advice and pricing recommendations
- Understand hedge accounting implications. PMC can help you determine necessary documentation for auditors
- Calculate and forecast interest. PMC can and provide technology tools to calculate and forecast interest cost
PMC is your partner
PMC will keep you informed as guidance from regulators and central banks develops
- Talk to us. Our specialists help you address the challenges of IBOR transition
- Join a roundtable. Join one of our special roundtable sessions to discuss approaches
- Explore PMC Analytics. Our technology solution can calculate and forecast interest payments
- Assess readiness. Our treasury experts help assess readiness and endorse plans / identify issues