IBOR panel session

Yolaine Kermarrec, from Ernst & Young LLP, hosted a panel discussion around how to address the challenges related to the replacement of IBOR - a conversation between a corporate and two banks

The GBP RFR Working Group expects market participants to cease issuing new products referencing GBP LIBOR by Q3 2020. Associated British Ports is a first mover in the market via the recent restructuring of £65m LIBOR-linked FRNs due 2022 to reformed SONIA-linked FRNs announced on 11 June 2019

“ABP has about £4bn exposure to GBP LIBOR in notional. We started to look at this seriously about two years ago and are proactively transitioning existing instruments to Reformed SONIA.


We received a lot of questions on how the spread for the recent restructuring of our FRNs had been determined. Ultimately this was not controversial - The challenge was not to determine the spread, but to make the conversion easily understandable and replicable.”

Shaun Kennedy, Associated British Ports

What do you think will be the biggest impediment to adopt new Alternative Reference Rates (ARRs)?

“To some extent it is dependent on clients and what will work best for them. There’s still some level of inertia, especially with some of the smaller banks. We expect the resolution of the ISDA consultations will move the market ahead.”

Fiona Thomson, Goldman Sachs

“At a money market forum I recently attended, around two thirds of attendees felt LIBOR would still be around beyond 2021.”

Steve Bullock, Lloyds Banking Group


A number of market participants tell us that they need a term rate benchmark. What are your views on this?

“At ABP we did not feel we needed term benchmarks.Overnight SONIA has plenty of liquidity and there are no issues with compounded rates.”

Shaun Kennedy, Associated British Ports

“The ARRC cautioned that Term structures might be more expensive because they’re not exactly natural rates for the market to use, but are instead priced rates.”

Steve Bullock, Lloyds Banking Group

“We would stand ready for it if the clients wanted term rate structures, but it’s not something we’re hanging on for in either SONIA or SOFR”

Fiona Thomson, Goldman Sachs

Yolaine Kermarrec, from Ernst & Young LLP, hosted a panel discussion around how to address the challenges related to the replacement of IBOR - a conversation between a corporate and two banks

What are your plans to issue SONIA term loans?

“It is on the agenda. There is a real challenge with infrastructure providers since the market hasn’t agreed upon a single market convention.”

Steve Bullock, Lloyds Banking Group

“We are in discussions with clients across a range of products and that likely includes SONIA term loans. But there is no hard line in the sand.”

Fiona Thomson, Goldman Sachs


Do you see a competitive advantage to being a first mover?

“There is also almost a sense of corporate responsibility in being an early mover.”

Steve Bullock, Lloyds Banking Group

“It takes a lot more time and effort to be a first mover, as well as the associated legal costs, however this is an opportunity to influence the debate and steer the market practice to a more favourable state. Being involved allows you to be active and not passive.”

Shaun Kennedy, Associated British Ports

Your IBOR programme in a few key numbers

“We have identified thousands of models and systems with a LIBOR touch point. It is important to prioritise the remediation.”

Fiona Thomson, Goldman Sachs

“We have a large scale programme across the entire group.Hundreds of models are impacted .”

Steve Bullock, Lloyds Banking Group

“The impact on systems should not be underestimated. We have a single treasury system, and it still took us 9 to 12 months of efforts to make it ready for the transition”

Shaun Kennedy, Associated British Ports

“We have set up a 5-FTE central programme office in Corporate Treasury, but we have about 10 global workstreams with many more individuals involved.Each workstream has a dual leadership, from the US and from another region”

Fiona Thomson, Goldman Sachs

Yolaine Kermarrec, from Ernst & Young LLP, hosted a panel discussion around how to address the challenges related to the replacement of IBOR - a conversation between a corporate and two banks

What are some of the key focus areas and deliverables for the finance function?

“There is a big role for the broader finance function to play in the monitoring of the risk and exposure management. We are looking at how to cut exposures down, using a risk-based sensitivity measure.

We’ll be looking at the funding curve and understanding when other risk free rates should become a larger input to that. Hedging is another consideration and we’ve been assessing what options we have for executing on that, including layering on, terminating, etc.


We’ve also been focusing on external advocacy and driving forward the accounting and tax agenda in particular.


Also worth mentioning the capital and Volker perspectives to consider”

Fiona Thomson, Goldman Sachs

What are the implications for the Fair Value hierarchy?

“We have executed our first fixed rate to SOFR hedge, and spent a long time thinking about this to ensure it would be classified as a level 2 and not level 3. We were comfortable with a 2.5-3 year tenor at the time.As liquidity increases, we will likely see tenors and positions move out further quite quickly.”

Fiona Thomson, Goldman Sachs


When should expect disclosures on the financial impact of the transition or the exposure to IBORs?

“Quantitative disclosure is a very interesting question. Firms have taken quite different views on granularity and simplicity versus complexity so comparability will be a consideration. As a market maker our exposure changes all the time depending on client demand, so therefore any point in time estimate changes rapidly.”

Fiona Thomson, Goldman Sachs

“The “IBOR discontinuation is currently disclosed as one of our emerging risks. A big question is the exposure point, and we are now building a solution to address this regularly and routinely.” cautioned that Term structures might be more expensive because they’re not exactly natural rates for the market to use, but are instead priced rates.”

Steve Bullock, Lloyds Banking Group

Yolaine Kermarrec, from Ernst & Young LLP, hosted a panel discussion around how to address the challenges related to the replacement of IBOR - a conversation between a corporate and two banks

How do you describe the level of engagement between corporate treasurers and banks with regards to IBOR transition?

How do you describe the level of engagement between corporate treasurers and banks with regards to IBOR transition?

Shaun Kennedy, Associated British Ports


What is the role of your Treasury function in your IBOR transition programme?

“Treasury is leading on overall responsibility of the programme across the bank. Facing to the board, and bringing the right story to the senior stakeholders. Treasury have been identifying key risks, emerging risks and innovations, such as being the first commercial bank to issue a SONIA bond.”

Steve Bullock, Lloyds Banking Group

One of the biggest challenges for a Treasury function is the increased basis risk during the transition

“Our biggest concern is the risk of having some products stuck in LIBOR and others in alternative risk free rates. Additionally, the rate at which we transition shifts, since we cannot move all our exposure at one time or at a single rate, so we need to manage this transition over time.”

Shaun Kennedy, Associated British Ports

“What we haven’t yet seen to date is how those rates will react in a stressed scenario.”

Steve Bullock, Lloyds Banking Group

“There is no 2021 gun on the Euribor.The different trajectory on implementation in Europe is an additional challenge.”

Steve Bullock, Lloyds Banking Group