ICE plans to extend one-month, three-month Libor through June 2023

The ICE Benchmark Administration, which administers the publication of the U.S. dollar and other denominational Libor benchmark rates, announced Monday it planned to extend the publication of key USD Libor tenors — including one- and three-month rates — another two-plus years past the originally planned cessation date.

The administrator will proceed with ending publication of the one-week and two-month Libor benchmarks, but will carry on with other Libor term rates through the end of June 2023, pending confirmation with market participants in December. The one-month and three-month benchmarks are used in most floating-rate offerings in asset-backed and structured-finance securities purchased by institutional investors including banks, pension funds and insurers.

ICE also publishes Libor rates for six-month, one-year and overnight Libor rates that will be extended through June 2023 as well.

The announcement coincided with federal financial regulators issuing a joint statement Monday encouraging U.S. banks to stop entering into contracts that utilize the U.S. dollar Libor index benchmark rates. But the continued use of some of the Libor rates will allow most U.S. Libor-based contracts to "mature without disruption," according to a report from S&P Global Ratings

All Libor rates across multiple tenors and currencies were expected to cease publication after Dec. 31, 2021, when the UK’s Financial Conduct Authority said it would no longer required panel banks to submit the daily offering rates used to calculate the various term benchmarks for floating-rate Libor.

The impending deadline provided the impetus in recent years for backstopping new-issue securitizations, as well as outstanding asset-backed consumer and commercial debt portfolios, with replacement benchmark rates for 2022 and beyond. But the task is a steep one. A necessary forward-looking, term-based rate based on repo market transactions (the Secured Overnight Financing Rate published by the New York Fed) remains in development with a Fed-convened alternative reference-rates industry committee.

Meanwhile, a plan to utilize New York state legislation to kickstart Libor replacements in financial-market agreements — which would govern Wall Street contracts — is in limbo.

“The proposed delay in the phase-out of key US dollar Libor maturities will provide clarity and help many securitizations with exposures avoid basis risk and other potential damaging effects from the benchmark’s disappearance, and give market participants further time to address the challenges of ‘tough legacy’ Libor exposures,” said Jon Polansky, Moody's managing director, in a statement.

"We are encouraged to see strong support from policymakers and key organizations in the U.S. and abroad on a path forward, which brings much needed clarity on the LIBOR transition,” added Michael Bright, chief executive officer of the Structured Finance Association, also in prepared remarks issued Monday. “It is incredibly important to consumers, the securitization industry, and the broader floating rate market that we get this right, which is why market participants must march forward in the same direction and why we have been working with our members for years on a unified approach to develop solutions to ensure there is an orderly transition upon the discontinuance of LIBOR.

"This morning’s announcement, along with the legislative efforts in both New York state and the U.S. Congress that are still needed for the over $10 trillion of long-dated legacy contracts that mature after mid-2023, will provide the full complement of necessary solutions to work through this massive transition.”

In a joint statement Monday, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency encouraged banks to “transition away from U.S. dollar (USD) Libor as soon as practicable.” The Federal Financial Institutions Examination Council announcement warned that entering into new contracts referencing U.S.-dollar Libor “would create safety and soundness risks” for banks.

ABS issuers have also been encouraged by regulators to use alternative benchmark rates such as SOFR in new offerings, such as Freddie Mac’s sponsorship of its first-ever SOFR-linked credit-risk transfer sale in October. Both Fannie Mae and Freddie will stop issuing Libor CRT deals at the end of the year.

The announcement came less than a month after the FFIEC had granted financial institutions the option to choose any reference rate for Libor replacement, following complaints from smaller banks that SOFR was unsuitable due to their lack of access to the repo market that is more appropriate for larger banks. One such option is Ameribor, an overnight rate created for small and mid-size banks by the American Financial Exchange, and created by Richard Sandor, a major figure in the Chicago trading market.

Ameribor is also making inroads in the ABS/MBS markets. Last month, Sandor told Asset Securitization Report an undisclosed “signature” regional bank chose to issue the floating-rate tranches of $375 million in subordinated-debt bonds referencing the Ameribor rate.