On 11 February 2021, the Working Group on Sterling Risk-Free Reference Rates issued a consultation paper on a successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR.

The consultation paper is addressed to bond market participants who are considering the operation of fallbacks in their contracts which will be triggered in the event of the permanent cessation of GBP LIBOR (a “permanent cessation event”), or on an announcement of the non-representativeness of GBP LIBOR by the supervisor of the administrator of LIBOR (a “pre-cessation event”). The active conversion of legacy GBP LIBOR bonds to reference SONIA is discussed briefly but is outside the scope of the consultation paper.

The purpose of the consultation paper is therefore to seek feedback on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds upon the occurrence of a permanent cessation event or a pre-cessation event, and to seek feedback on the successor rate to be recommended.

Subject to its consideration of the feedback received on the consultation paper, the Working Group expects to recommend a fallback successor rate for use in the bond market upon the occurrence of a permanent cessation event, or upon the occurrence of a pre-cessation event, which will ultimately assist the objective of the Working Group of facilitating a smooth transition away from GBP LIBOR to SONIA.

The consultation paper will remain open until 16 March 2021