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Libor

How Pepper can help you with LIBOR replacement

LIBOR Replacements

LIBOR, the widely used benchmark loan issuers use to determine interest rates, is being phased out. No new LIBOR or CLO issuance will be originated after 2021, and LIBOR is expected to be fully decommissioned by 2023.

SOFR, or Secured Overnight Financing Rate, is the rate preferred by regulators and is widely used in the derivatives market, suggesting it as the new replacement index. This adoption will have a significant impact on the US credit market as well as long term effects for most credit managers.

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LIBOR Replacements

LIBOR, the widely used benchmark loan issuers use to determine interest rates, is being phased out. No new LIBOR or CLO issuance will be originated after 2021, and LIBOR is expected to be fully decommissioned by 2023.

SOFR, or Secured Overnight Financing Rate, is the rate preferred by regulators and is widely used in the derivatives market, suggesting it as the new replacement index. This adoption will have a significant impact on the US credit market as well as long term effects for most credit managers.

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Explore LIBOR and SOFR performance on a daily, monthly, or yearly basis with Pepper!

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Multi-Rate World

Managers have to be ready to live in a multi-rate world. This creates a whole new level of risk in the market.

  • Inability to predict expenses accurately, as SOFR is backwards-looking. Managers will not be able to accurately predict all their expenses into the future.
  • Operational challenges of a portfolio having assets using multiple rate types. Such challenges include portfolio valuations, margin calculations, and compliance reporting.
  • Asset / Liability mismatches due to differing rates.
  • Asset allocation to different portfolios have to be closely managed to ensure regulatory requirements are met while still producing the highest returns.
  • Reconciliation of indexes and interest calculated, where managers, portfolio administrators, loan administrators, and leverage providers could each be using a different version of SOFR.
  • Adjusting the spread methodology of multiple SOFR calculation methodologies, including compound interest SOFR, simple interest SOFR, and compounded SOFR.

Pepper is helping asset managers with these complex transitions to a multi-rate world.

Overall SOFR and LIBOR Performance

SOFR and LIBOR Performance (USD)

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Alternate Rates

Alternate Rates Performance (USD)

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