KBRA Releases Research – Structured Credit: LIBOR Transition—Basis Loaded?

Kroll Bond Rating Agency (KBRA) releases a report on the challenges faced by the structured credit market ahead of the LIBOR transition.

As the June 2023 cessation date for 1-month and 3-month USD LIBOR looms closer, structured credit products still face uncertainty as borrowers and lenders weigh the economic impact of switching to the recommended replacement, the Secured Overnight Financing Rate (SOFR). Regulators have urged the broader market to cease issuing new LIBOR-based contracts by the end of 2021, clearing the way for SOFR as the successor benchmark for floating rate transactions.

Some important considerations for assessing disruption risk to CLOs and other structured credit deals include the passage of key legislation to address litigation risk in legacy contracts, the steps already taken in recent deal documentation to incorporate fallback provisions, and the ability of structures to absorb any potential basis impact.

Click here to view the report.

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• Structured Credit Trend Watch: Record Issuance and an Evolving Marketplace

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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