On Thursday, May 16, 2019, the BABCPHL hosted a finance seminar about The Secured Overnight Financing Rate (SOFR) at the Chamber of Commerce for Greater Philadelphia. In 2021, the London Interbank Offered Rate (LIBOR), the world’s most important financial rate, will go away, but it is unclear what will replace the index used in virtually every significant credit arrangement, bond, swap and financial instrument. The volume of financial contracts based on LIBOR is estimated at $200 trillion. The change will affect every company and financial institution. The Federal Reserve Bank of New York has proposed that SOFR become the new lending resource rate. It is the rate banks will pay on the repurchase agreement market for borrowing overnight. US regulators anticipate SOFR will be widely adopted to back the derivatives and loans market, and to be the universally accepted replacement for the outgoing LIBOR.
Not SOFR away. Are you ready? What can you expect and what are the implications of losing LIBOR and adopting SOFR? This timely and interactive seminar featured experts in the field who addressed the following questions:
- What is SOFR?
- How will moving to SOFR change credit agreements, swaps, and other financial instruments?
- How to navigate the transition?
- What should parties be doing now?
Michael Pedrick, Partner at Morgan Lewis & Bockius LLP and President BABCPHL opened the session by welcoming attendees and introducing the topic and speakers. Michael moderated the seminar, and provided a discussion about moving away from LIBOR to SOFR. He talked about the credit facilities that would be affected by the transition; how financial instruments should address the change; actions to be taken to prepare; and provided a review of contractual terms anticipating the discontinuance of LIBOR. Michael also discussed strengthening provisions in new credits and amendments, and what parties need to do to prepare as transition approaches to provide greater clarity and security for existing facilities.
Gennadiy Goldberg, Senior US Rates Strategist, Global Strategy, TD Securities USA (LLC) conducts research and provides market commentary on interest rates and the US economy. He focuses on Treasuries, swaps, TIPS, supranationals and agencies, as well as green bonds. Prior to joining TD in 2012, Gennadiy worked as a Fixed Income Strategist at an independent research firm, Continuum Economics. Gennadiy’s presentation provided a deeper dive into the topic. He discussed the reasons for the discontinuance of LIBOR, and the role of Fed and ARRC. Gennadiy talked about TD’s role in the transition process, and the current status of the move.
Richard Mejzak, CFA, Managing Director and portfolio manager, is Global Head of Portfolio Management for Cash Management, within BlackRock’s Trading & Liquidity Strategies group. He is primarily responsible for USD & CDN liquidity and short duration portfolios, including securities lending collateral, mutual funds, separate accounts, and ETFs. Rich’s service with the firm dates back to 1990, including his years with Merrill Lynch Investment Managers, which merged with BlackRock in 2006. Rich is a member of the CFA Institute and the CFA Society of Philadelphia. He earned a BS degree in accounting from Villanova University and serves on the Villanova School of Business Finance Department Advisory Council. Rich’s presentation focused on the investor side of things. He discussed the impact on structuring investment portfolios; the impact of change on existing investment portfolios; and structuring current investments while addressing the transition.
Ken Menezes, Managing Director Treasury, Asset and Fuel & Energy Management at American Airlines is responsible for the overall jet fuel supply chain including contract management, logistics and airport operations, managing the investment activity of the various retirement and health/welfare plans, providing oversight of the Company’s short term investments and surety bond portfolio, managing corporate financial risk including interest rate risk, FX risk and commodity risk, and providing analytical support for the Treasury department. Ken has a Master’s in Business Administration from Southern Methodist University and is also a CFA® charter holder. Ken’s presentation covered the perspective of a significant corporate borrower. He discussed the issues implicated by the transition from LIBOR to SOFR and how a company should prepare for the change. His speech focused on floating rate facilities; private aircraft mortgages—3-6 month LIBOR, beyond 2021 set date; amendments and implementations. He also covered the importance of developing language, working with lenders about how to document the new protocol, and what the impact on corporate investments might look like.
Special thanks to sponsors: American Airlines; BlackRock; Morgan Lewis & Bockius LLP; and TD Securities. The British Chamber was honored to partner with the French American Chamber of Commerce and the World Trade Center of Philadelphia to deliver this seminar.
Click here to view photos from the event.
