With the phasing out of the most widely-used benchmark interest rate, flow looks at how one bond transaction successfully switched to a new reference rate
On 11 June 2019, a group of investors voted in favour of a proposal by Associated British Ports (ABP) to amend a £65 million floating rate note so that subsequent interest coupons are linked to the compounded Sterling Overnight Index Average (Sonia), instead of Libor, or the London Inter-Bank Offered Rate. The switch was hailed as a blueprint1 for issuers moving away from the most widely used benchmark for short term interest rates and looking to amend their documentation for future and existing issuances.
ABP achieved a modification to the terms which included an adjustment to compensate for any pricing difference between forward looking Libor and backward looking Sonia for the remaining term of the note.
The success of this consent solicitation process was hailed as a “first of its kind”, serving as a proof of concept in the industry, and should be encouraging for other bond issuers in the run up to January 2022, when contracts using Libor could become obsolete.
Deutsche Bank, as tabulation agent, facilitated the flow of information between ABP and key stakeholders. The bank’s experienced team of specialists provided dynamic reporting during the consent solicitation process and was one of the key parties in delivering the transparency needed to obtain the noteholders’ approval and getting the transaction over the line.
flow magazine is published twice per year and can be read online and delivered to your door in print
Find out more about products and services