Fund managers tell firms: scrap LIBOR-linked bonds

Galina Dimitrova

The Investment Association (IA) — the powerful trade group for the Scottish and UK asset management industry — has called on companies to step up their efforts to transition away from LIBOR-linked bonds.

The IA’s 250 members manage £8.5 trillion of assets.

In a letter to companies still issuing LIBOR-linked sterling bonds, including those within the FTSE 350, the IA warned of the risk of “significant market disruption and harm to investors if bonds continue to reference a non-representative rate after the December 31st 2021 transition deadline.”

The association added: “With the deadline now fast-approaching, there remains a significant number of outstanding LIBOR-linked bonds which have not yet transitioned to a new rate.

“Estimates place the value of these outstanding bonds at £108 billion …

“Investment managers have already successfully worked with many companies to agree a fair transition for their LIBOR-linked bonds, and welcome engagement from those still looking to do so.

“The IA’s members are also willing to consider alternative arrangements with companies, such as buybacks.”

Galina Dimitrova, Director for Investments and Capital Markets at the Investment Association 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.”