Life Post-LIBOR: What Treasurers Need to Know

The June 30, 2023, US Dollar LIBOR cessation deadline is a critical milestone in the global transition away from LIBOR to alternative reference rates. This deadline marks the end of LIBOR’s publication for all currencies and tenors except for Synthetic US Dollar LIBOR, which means that market participants including corporate treasurers must transition to alternative reference rates.

For corporate treasurers the transition away from US Dollar LIBOR, that has been a widely used benchmark rate for decades and its discontinuation pose significant challenges. Corporate treasurers working with their counterparties face the challenge of selecting fallback rates for existing legacy transactions and adapting to a new world in which there are several US Dollar reference rates.

In 2017, the NY Federal Reserve’s Alternative Reference Rate Committee (ARRC) selected SOFR ,an overnight rate, as its recommended replacement rate for US Dollar LIBOR. The ARRC recognised that there could be certain conditions where adapting to an overnight rate could be more difficult and thus explicitly included a goal of producing a forward-looking term rate for use in cash products in its Paced Transition Plan.

In 2021 the ARRC completed its Paced Transition Plan by formally recommending CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates for use in cash products.

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