On 23 July 2018, the Working Group on Sterling Risk-Free Reference Rates (the Working Group) published a paper on the new issuance of Sterling bonds referencing Libor.

The overall objective of the Working Group is to catalyse a broad-based transition to SONIA by the end of 2021 across sterling bond, loan and derivative markets, in order to reduce the financial stability risks arising from widespread reliance on Libor. The paper sets out some considerations for market participants in relation to the issue, offering and purchase of long-dated floating rate bonds referencing Libor on the basis of current market standard bond documentation. Risks to be considered include:

• the floating rate bond may become fixed if Libor is discontinued;
• a liability management exercise may be required if Libor is discontinued;
• if a switch from floating to fixed rate results in a loss to investors, this could expose the issuer and arranging bank(s) to litigation risks; and
• Libor may continue to be published but may be based on submissions from fewer panel banks or a different methodology.

The Working Group stresses that to mitigate the aforementioned risks concerning Libor discontinuation in relation to new issues of Sterling bonds, new issues of Sterling bonds should reference alternative benchmarks, in particular SONIA.