The Latest on LIBOR Phaseout
In August 2017, Ponder published a paper, “What you need to know before LIBOR disappears”, outlining the uncertainties surrounding the eventual discontinuation of LIBOR. Since that paper was published, there have been some important developments related to a LIBOR phase-out.
- SOFR (“Secured Overnight Financing Rate”) has been designated by the Alternative Rate Reference Committee (ARRC) as the replacement for LIBOR based interest rate swaps.
- A survey of market participants conducted by ISDA indicates a preference for cash flow neutral modifications to existing swaps rather than mark-to-market (MTM) neutral modifications. If this method becomes industry standard, Ponder believes it would be detrimental to most hospitals and health systems as it would likely materially lower most swap MTMs.
- Lenders have not yet decided on a replacement index for direct placements and loans, but the development of new benchmarks is underway and SOFR remains a possibility.