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With four major interest rate benchmarks ceasing to be published by the end of last year, we thought now would be a good time to provide a refresher on alternative currency rates. In this article we first discuss the key shifts that occurred to transition to more robust benchmarks for Canadian dollars, Singapore dollars, Japanese yen and Mexican pesos. We then examine the ongoing relevance of the base rate conventions for Euros, Sterling, Australian dollars, Hong Kong dollars, New Zealand dollars, Danish krone, Norwegian krone, Swedish krona and Swiss francs. With this information, you’ll be prepared to manage any related provisions in your fund finance transactions.
As we kick off 2024, the focus on the unavailability of certain benchmarks continues on. To refresh, we have already seen the benchmark for US Dollars generally replaced with the Secured Overnight Financing rate as administered by the Federal Reserve Bank of New York, Sterling replaced with the Sterling Overnight Index Average as administered by the Bank of England and Swiss Francs replaced with the Swiss Average Rate Overnight as administered by the SIX Swiss Exchange AG.
Looking ahead, we expect to see the cessation of additional benchmarks including, but not limited to, the Canadian Dollar Offered Rate and Singapore Interbank Offered Rates.
One-month term SOFR ramped up from less than 10 bps in the Spring of 2022 to around 5.33% now. Not surprisingly, higher subscription facility cost of funds can affect fund performance metrics. In The Changing Landscape of Capital Call Facilities published this week, Pitchbook analysts take a look at the IRR and TVPI sensitivities to SOFR levels, concluding that smaller facilities and increased use of hybrid facilities may be possible market adaptions to the current environment.
This past weekend officially marked the end of summer in the U.S. as vacations and Labor Day gatherings have come and gone, and the kids are now back in school. And while I anticipate that everyone’s in-office attendance will be positively impacted by this development, it’s also a good marker as we approach the end of the third quarter to assess how the year has gone.
As we finish the last season of LIBOR replacement, the fund finance market is busy amending our loan documents to include SOFR as the interest rate benchmark for U.S. dollar loans. While the cessation date for USD LIBOR is June 30, 2023, the deadlines for the continuing IBOR benchmarks for other currencies are more of a mixed bag. In this piece we analyze the current state of play of the alternative currency benchmark rates to equip you with the information you need to assess their use in your facility documentation.
Recently, as has been long signaled, the UK's Financial Conduct Authority announced that it would indeed require the International Exchange Benchmark Administration to publish an unrepresentative synthetic USD LIBOR for 1-, 3- and 6-month tenors for an additional year, which is expected to be further extended through September 30, 2024. It has come at a time when we continue to be in the thick of LIBOR transition amendments in our fund finance deals, as June 30, 2023 − the last date of publication of representative USD LIBOR − is quickly approaching. Given this dynamic, the FCA announcement has created some confusion in the fund finance market – and in the broader loan markets. Here we explain the dynamics at work and what it means for fund finance deals.
As remarkable as the year has been for banks, 2022 will be remembered in part for the continued ascent of private credit. The scale and significance of these non-bank lenders became clear this summer when private credit funds stepped in to close a number of multi-billion unitranche loans as banks retreated from the leveraged loan market.
As we head into the Thanksgiving Holiday in the U.S. next week and try to take a breather from the breakneck pace of the market over the last 18 months, it is a good time to reflect on where we have been, where activity levels stand and the trends we expect to continue into 2023.
At last week’s Finance Forum, panelists Bryan Kearns, Managing Director at Bank of America, and Michele Simons, Managing Director at Wells Fargo, discussed the 2022 Fund Finance Market in a panel hosted by Cadwalader's Tim Hicks and Leah Edelboim. The aim of the panel was to dive into an analysis of Cadwalader’s raw data from its 2022 transactions, with these leading industry experts weighing in on trends and providing their insights and outlooks for 2023.
In case you missed it earlier this summer, here’s our updated guide to primers we’ve previously published in Fund Finance Friday.