On 3 February 2021, the Investment Association (IA) issued a letter to CEOs / CFOs of companies issuing LIBOR-linked sterling bonds warning of the risk of significant market disruption and harm to investors if bonds continue to reference a non-representative rate after the 31 December 2021 transition deadline. The IA notes that there remains a significant number of outstanding LIBOR-linked bonds which have not yet transitioned to a new rate. It estimates the value of these outstanding bonds at £108 billion.
Galina Dimitrova, Director for Investments and Capital Markets at the IA said: “Time is running out for companies to transition their LIBOR-linked bonds. Companies that have yet to do so must now take urgent action to ensure their bonds are LIBOR free by the end of 2021. We stand ready to help both companies and investors as they complete the process.”
Edwin Schooling Latter, Director Markets and Wholesale Policy at the FCA, said: “The FCA welcomes the IA’s initiative to help issuers of LIBOR securities reach out to IA members who hold their bonds to agree conversion through consent solicitation. Mutually agreed conversion from LIBOR to risk free rates plus spreads consistent with industry recommendations on fair transition arrangements can enable both the bond’s issuer and holders to avoid the uncertainty they will face upon LIBOR’s proposed cessation. It also allows conversion to the market standard of the RFR compounded in arrears that has now developed in bond markets – an advantage which synthetic LIBOR cannot provide.”