A survey of 71 derivatives users, conducted by JCRA, an independent financial risk advisory firm- at an event held in conjunction with global lawyers Norton Rose Fulbright – found 85 per cent had Libor-referencing contracts due to terminate later than 2021.
A total of 49 per cent considered that these contracts did not incorporate language that provided a fallback position post 2021 and 40 per cent didn’t know.
Asked how efforts to renegotiate affected contracts have progressed so far, 38 per cent said talks hadn’t yet started, 26 per cent indicated it was a work in progress and 23 per cent had not yet identified which of their contracts were at risk.
In terms of where responsibility lies for identifying affected contracts, 58 per cent believed it rested with both lender and borrower, 31 per cent said lender and 8 per cent indicated borrower.
“It’s concerning how few renegotiations have actually taken place. This research highlights the scale of contracts renegotiation required in the near future,” said Joshua Roberts, lead adviser on benchmark reform at JCRA.
“There’s danger of a significant capacity problem as the 2021 deadline approaches. Firms should take appropriate advice to understand the options available when amending contractual arrangements. We recommend that firms look to benchmark renegotiations to minimise risk and fully understand any value transfer that could occur,” Roberts added.
Davide Barzilai, partner at Norton Rose Fulbright, added: “The direct link between significant parts of the debt and derivative markets means that a smooth transition for the legacy book is all the more important. Having advisors on board who understand the issues across different markets and jurisdictions will make the transition much easier.”
