With major milestones approaching for the LIBOR transition, we examined structured finance globally to determine exposures, readiness, key issues, and remaining unknowns. Compared to corporate and bank debt markets, structured finance markets are more sensitive to the LIBOR transition because they generally contain both assets and liabilities tied to this benchmark, not just liabilities. This is compounded by high noteholder approval thresholds for rate modifications, a lack of robust fallbacks in assets and/or liabilities for legacy contracts, and a lack of an active operating issuer with the flexibility to easily change contract terms. Time is running out for pound sterling, Japanese yen, Swiss franc, and euro LIBOR settings, all of which are scheduled to end this year. We have observed significant progress among structured finance transaction parties making amendments to LIBOR coupons where feasible, but in limited cases such amendments may not be possible.

The September 2021 announcement of a synthetic LIBOR rate for pound sterling and Japanese yen settings promises to ease some of the year-end transition risk, but final details are needed on its precise applicability. While major dollar LIBOR settings won't sunset until after June 2023, December 2021 is also a key threshold in U.S. markets. U.S. bank regulators have advised that after year end LIBOR should not be used in new contracts, which would cover both assets and liabilities in dollar-based securitizations. This will likely generate additional issuance this fall in sectors that heavily use LIBOR, such as collateral loan obligations (CLOs), pulling forward some 2022 issuance.

Table 1

There is significant variation in exposures by sector and region

While it's universally true that LIBOR is in the process of phasing out globally, the impact and exposure varies significantly by sector and region. And in structured finance, transaction documentation can vary among issuers even in the same sector such that sweeping generalizations about LIBOR risks are challenging. The largest exposure to LIBOR by far is in the U.S. securitization markets, but given the June 2023 phase out date, heavy transaction amendments to assets and liabilities have not started in earnest. And upward of 90% of U.S. exposure is concentrated among the CLO, legacy RMBS, and student loan ABS sectors, each with unique features in terms of fallbacks and other related matters. While much smaller, exposures in Europe and Japan are crystalizing final plans for new rates where possible by Dec. 31. Where impossible, it appears synthetic LIBOR will remove the most disorderly outcomes. Investor reaction around final coupon changes as well as unamended asset rates, however, remains to be seen.

Progress away from LIBOR continues in Europe and Japan

In Europe and Japan, we have seen transaction parties increase amendment and early redemption activity in 2021 to address LIBOR transition. So far, changes to liabilities are proving easier than changes to asset rates tied to LIBOR. Some older, pre-2017 assets, such as variable rate mortgages, are taking longer to amend and will likely not be completed by end of 2021 given their quantity and the lack of fallbacks in older contracts. The permanent cessation of LIBOR was not contemplated when these older contracts were originated. However, they can usually be unilaterally amended by servicer.

A rate transition for consumers could raise benchmarks

In Japan and the U.K., a switch to the new risk-free rates plus a recommended spread adjustment has the potential to marginally raise consumer borrowing costs. Without offsetting adjustments, these could prove unpopular. An example of a switch from sterling LIBOR to the term sterling overnight index average rate (SONIA) plus the recommended International Swaps and Derivatives Association (ISDA) spread adjustment is shown below.

Table 2

But proactively changing rates away from LIBOR may not be possible in all scenarios. We believe there are some limited situations in which there is no realistic way to amend liability interest rate terms. Such contracts, including those with no fallbacks or weaker bank polling-type fallbacks, would likely benefit the most from a "synthetic LIBOR" rate (see below). In Europe, the single-largest LIBOR exposure is in the U.K. residential mortgage backed securities (RMBS) segment, where we've already seen some noteholder consent solicitations go out with some rate amendments enacted for the liabilities. Similarly, most Japanese yen LIBOR exposures are in the RMBS sector and have made some progress to date amending liability rates.

Synthetic LIBOR will likely ease the transition at year end but may not represent a long-term solution

On Sept. 29, 2021, the U.K. Financial Conduct Authority (FCA) announced that the LIBOR benchmark administrator is required to publish the one-, three-, and six-month pound sterling and Japanese yen LIBOR under a "synthetic" methodology for the duration of 2022. For pound sterling settings, "synthetic LIBOR" will be calculated as a forward-looking term SONIA rate plus an ISDA fixed-spread adjustment for the respective term. For Japanese yen settings, the forward-looking term Tokyo Term Risk-Free Rate (TORF) would be used together with the ISDA fixed spread adjustment. While synthetic LIBOR may continue for up to 10 years for pound sterling, it will need to be formally approved on an annual basis. For Japanese yen, the FCA has made it clear that synthetic LIBOR will only exist for 2022. In this cases, absent future coupon amendments, it will be necessary to revisit potential rating impact next year as yen synthetic LIBOR is scheduled to phase out after December 2022.

A synthetic LIBOR rate may become a viable temporary option for legacy structured issues and the underlying loan contracts at the beginning of 2022 should the proposed wide scope of usage be confirmed. It would effectively allow legacy transactions to avoid disruption and rating risk at year end by extending the transition process into 2022. Given its limited publication timeframe, however, it would not serve as a permanent solution for legacy structures with a long remaining term: They would still face the need to manage the path away from LIBOR. And the related U.K. Critical Benchmarks (References and Administrators' Liability) Bill under consideration by Parliament aims to reduce potential litigation and contract frustration by easing transition from LIBOR to synthetic LIBOR by operation of law. Existing rates specified as fallbacks do not appear to be overridden by provisions of the U.K. critical benchmark bill. While it does not contain the full legal safe harbor we see under New York LIBOR law, it represents a significant step toward a more orderly transition.

Unlike transactions governed by U.K. law, which should benefit from legal support from a proposed critical benchmarks bill, there has been no proposed similar legislation in Japan. While a synthetic LIBOR rate still is expected to ease the 2021 year-end transition away from yen LIBOR, the lack of legal support in Japan could incrementally raise legal uncertainty of implementing that rate in that country.

Issuer and transaction party communication of replacement interest rate plans for assets and liabilities is essential before year end on sterling and yen exposures

Given the interaction of assets, liabilities, hedge agreements, and their respective fallbacks on securitizations, even with a synthetic LIBOR rate, we will seek to understand clear plans around alternative rates to pound sterling and Japanese yen LIBOR before year end. Transaction participants such as servicers and administrators will need to clarify their interpretation of the new synthetic LIBOR rate and applicability vis-à-vis any existing fallback language in their contracts. In many cases, the presence of a viable synthetic LIBOR rate is likely to prevent fallbacks from activating (such as those that convert a floating rate to a fixed rate). Our recent scenario analysis of seasoned U.K. RMBS transactions suggests a high degree of resilience to basis risk from LIBOR transition--but not unlimited resilience ("Potential Effects of LIBOR Replacement On U.K. RMBS Ratings," published Sept 1, 2021).

Legislative solutions are underway in the U.S.

Legislative solutions have progressed in the U.S. with a New York law that is expected to assist many, but not all, U.S. structured finance transactions. Its greatest beneficial impact is for student loan asset-backed securities (ABS) and legacy (pre-2009) RMBS liabilities in which many liability fallbacks are tied to fixing the rate based on the last quoted LIBOR. The legal safe harbor it creates by allowing the Secured Overnight Financing Rate (SOFR) plus a spread adjustment as a replacement for dollar LIBOR rates is expected to cut down on litigation for changing rates on existing transactions. However, we believe the law is much less applicable to the CLO sector because fixed rate fallbacks are found in fewer than 10% of transactions we rate.

Federal legislation is being considered by Congress. However, the timing of its ultimate passage and its precise final form is difficult to predict. Passage of federal legislation would be particularly beneficial for many securitizations given that the collateral is often governed by different state laws. A common solution may lower the incidence of litigation and disagreement among transaction parties related to changing interest rates. In addition, a federal legislative solution would likely put to rest concerns about current requirements of the Trust Indenture Act requiring applicable bond indentures to get 100% noteholder approvals for changes in key terms such as interest rates. Finally, a federal solution would also benefit the student loan ABS sector, where special allowance payments tied to student loan collateral are currently linked to LIBOR.

EMEA

In March 2021, the FCA indicated that it will cease compelling banks to submit quotes for pound sterling LIBOR after December 2021. As of September, there were still 96 structured finance transactions rated by S&P Global Ratings in Europe (mostly in the U.K.) tied to this benchmark totaling £35.12 billion, with about 23 transactions (again, mainly from the U.K.) where LIBOR coupons have not been amended and transition plans have not been announced. These transactions are mainly RMBS but also include ABS repackaged securities transactions and generally include liability fallbacks that are tied to bank polling or that are absent and whose liabilities are very difficult to amend given high noteholder approval thresholds (typically around 75%).

The synthetic LIBOR rate recently announced by the FCA promises to help several dozen EMEA structured finance transactions that have struggled to amend liability and asset coupons. Final clarification on the precise eligibility and applicability of these rates will be important and is expected following close of consultation on Oct. 20. Transaction-specific documentation varies from issuer to issuer and generally by vintage such that older transactions have weaker fallbacks. We will seek to understand from issuers' agents, securitization sponsors, and other key transaction parties (KTPs) how transaction wording around LIBOR rate interacts with synthetic LIBOR terms as a near-term solution to buy more time for additional amendments to occur--particularly on underlying assets such as mortgages where consumer notifications and responses have been slow.

Covered bonds

Contacts: Adriano Rossi, Milan, 39-0272-111-251, adriano.rossi@spglobal.com, Barbara Florian, Milan, 390-272-111-265, barbara.florian@spglobal.com; Tristan.Gueranger, London, 44-207-176-3628, Tristan.gueranger@spglobal.com 

The transition from pound sterling LIBOR is almost complete on the covered bond programs we rate. About 80% of U.K. programs no longer have collateral indexed to LIBOR. For remaining collateral indexed to LIBOR, sponsors are engaged in discussions with borrowers on changing the benchmark index before LIBOR is discontinued to achieve an orderly transition. These U.K. covered bond programs have almost all replaced LIBOR with SONIA, and occasionally the Bank of England Base Rate (BBR), in their swap documentation. For one U.K. program, the special purpose vehicle still pays LIBOR on a minority of the liability swaps; however, we expect the issuer and the swap counterparties to agree on a new rate before year end. Following several consent solicitations, there are no longer any U.K. programs rated by S&P Global Ratings that are paying a LIBOR rate to covered bondholders.

Some Swedish covered bond programs continue to pay a coupon based on pound sterling LIBOR. Because the final maturity dates for these bonds occur prior to the pound sterling LIBOR discontinuation, the issuers do not plan to make any changes to the index. In Germany, a very small proportion of commercial real estate loans in a rated program are indexed to pound sterling LIBOR, and we understand the index on these loans will be changed before year end.

Covered bonds are backed by the general obligations of the issuing banks, which remain actively involved in their debt management. As a result, we do not anticipate any issues in the transition process.

RMBS

Contacts: Alastair Bigley, London, 44-207-176-3245, Irina Penkina, Moscow, 7-49-5783-4070, irina.penkina@spglobal.com, Roberto Paciotti, Milan, 39-0272-11-1261, roberto.paciotti@spglobal.com 

RMBS is the largest EMEA structured finance sector with LIBOR exposure. The number of rated U.K. RMBS transactions with pound sterling-linked LIBOR coupons declined by about 44% from January to September, falling to 57 from 102 (see chart 1). Thirty issues were redeemed, six confirmed the intention to call the notes before year end, and nine solicited the noteholders' consent to switch to SONIA as a benchmark note rate from 2022. Chart 1 summarizes the different ways that U.K. RMBS transactions have lessened their ties to LIBOR from January to September.

Chart 1

Out of 57 U.K. RMBS transactions exposed to the LIBOR phase-out, 15 have shared liability replacement rate plans and will soon trigger the formal noteholders' consent solicitation. An additional 28 transactions have started the consultation process with noteholders--though not a formal consent solicitation yet. One transaction is seeking the noteholders' view on modifying the terms of the call option to fully redeem the structure by year end. Still, about one-quarter of the affected transactions--about 13--have not publicly announced their transition strategy. Chart 2 summarizes information on efforts to change liability rates.

Chart 2

The current distribution of contractual liability fallback provisions for LIBOR in our RMBS portfolio reveals 12 issues with elevated risk. These transactions have fallbacks that require polling banks for interest rate quotes on each determination date following LIBOR cessation--a solution that may not be feasible after year-end 2021 (for more details on LIBOR fallback provisions in EMEA, see "European Structured Finance Market Accelerates Transition From LIBOR," published Feb. 9, 2021). Two transactions use fallbacks aligned with robust fallback language conceived by an industry group and appear to present lower risk because switching to a new benchmark would be subject to a negative noteholders' consent. In 43 transactions, following LIBOR cessation, the issuer sets the coupon at the last quoted LIBOR rate (i.e., converting LIBOR references to a fixed rate).

Chart 3

Replacing LIBOR with an alternative benchmark on the underlying assets remains a challenging task for U.K. RMBS transaction parties. While market consensus is leaning toward using BBR as a new benchmark, some mortgage administrators plan to use daily compounded SONIA or synthetic LIBOR in loan contracts. We anticipate the borrower notification process starting in November or December for the new benchmarks applicable since the beginning of 2022. We believe some operational delays are likely; therefore, transactions may be exposed to a timing gap and basis risk in applying the new rates on the notes and the assets. The scenario analysis we performed demonstrates rating resilience to the most likely rate replacement patterns and potential timing gaps (see the Related Research section); however, the ultimate rating impact will be considered on a case by case basis in due course.

ABS

Contacts: Irina Penkina, Moscow, 7-49-5783-4070, irina.penkina@spglobal.com, Elton Eakins, London, 44-207-176-3698, elton.eakins@spglobal.com, 

Most EMEA ABS transactions exposed to pound sterling LIBOR already switched liability benchmarks to SONIA in late 2020. The current reduction of LIBOR exposure mostly comes from redemptions: The remaining count as of Sept. 30 is five transactions, down from 24 at the beginning of the year. None of them has publicly announced a transition plan at this stage. The contractual fallback provisions allow for the replacement of the benchmark rate upon a negative noteholders' consent; therefore, the risk is manageable in our view.

Chart 4

Corporate securitization

Contacts: Greg Koniowka, London, 44-207-176-1209, greg.koniowka@spglobal.com, Elton Eakins, London, 44-207-176-3698, elton.eakins@spglobal.com 

All six U.K. corporate securitizations rated by S&P Global Ratings as of September 2021 (totaling £2.17 billion) have pound sterling LIBOR exposure related to drawn amounts from liquidity facilities with banks, pound sterling LIBOR floating-rate notes, or bank or institutional debt that ranks pari passu with the loans backing the rated debt.

In terms of the rated notes, we rate four U.K. corporate securitizations with pound sterling LIBOR floating-rate notes. For two, fixing LIBOR is the ultimate remedy, while the remaining two rely on bank polling. We view bank polling as having higher risk than other fallbacks because market quotes will no longer be guaranteed after the end of 2021. Of those transactions with bank polling as a remedy, the one with the largest notional LIBOR exposure is engaged in discussions with its lending banks (related to pari passu senior debt or facilities), hedge counterparties, and bondholders, and we expect that a suitable transition will be agreed upon. We have not been informed of any progress for the remaining transaction relying on bank polling or for the two transactions that look to fix LIBOR as a remedy.

We also rate two U.K. corporate securitizations, AA Bond Co. and RAC Bond Co., that contain LIBOR-indexed bank debts that rank pari passu to rated senior notes, making the rated notes indirectly exposed to the revised terms upon LIBOR cessation. Both securitizations have entered new facilities containing language to assist in the transition to SONIA. Meanwhile, discussions are underway with the lending banks under other existing facilities to execute amendments that would bring about a transition to SONIA.

CMBS

Contacts: Carenn Chu, London, 44-207-176-3854, carenn.chu@spglobal.com, Mathias Herzog, Frankfurt, 49-593-399-9112, mathias.herzog@spglobal.com 

We have identified 16 European CMBS transactions rated by S&P Global Ratings as of September 2021 with exposure to sterling LIBOR, totaling about £11 billion (original issuance amount). Because U.K. CMBS transactions typically securitize only a few assets (loans), our main concern is asset-liability mismatch, whereby the assets would pay a different type of interest rate than is due under the liabilities. This could endanger the timely payment of interest because there is typically very little excess cash flow in these transactions.

Of the 16 transactions identified, most--predominantly the newer vintage transactions--already have structures in their documents to reflect the upcoming cessation of LIBOR:

• Six transactions are looking to change the note interest to an alternative base rate and then change the loan interest to reflect that same rate.
• Three transactions are looking to change the loan interest to an alternative base rate and then change the note interest to reflect that same rate.
• One transaction already pays SONIA under the notes, and the loan interest will switch to SONIA, also under the documents.
• One transaction servicer has approached us and has changed the interest rate under the loans to SONIA plus a credit adjustment spread and is now in the process of also changing the note interest.
• One older vintage transaction has the same alternative screen rate in place for the loan and the notes. They will look for a bank reference rate from multiple banks (interest rate polling). We are not clear at this stage, however, whether this will be operationally feasible.

The definition of "alternative base rate" is typically unclear. It will typically require the trustee to consult with the noteholders.

We have identified four transactions with a possible asset-liability mismatch, all of which are pre-financial crisis transactions. In three of these transactions, note interest is based on LIBOR, and loan interest is paid on a fixed-rate and then swapped for LIBOR under a fixed-to-floating-rate swap agreement, meaning the swap will need to be changed together with the terms and conditions of the notes. One transaction would use interest rate polling for both the loan and the notes but would use a different set of reference banks, which could therefore lead to different base rates. We are in discussions with the respective servicers for each of these four transactions.

Some of the other servicers that we have spoken to have notified the investors via Regulatory Information Service notifications of their intent to change the transaction documents to reflect the cessation of pound sterling LIBOR and have then begun discussing document changes with noteholders and borrowers. We understand that the goal is to complete changes ahead of each transaction's last interest payment date before year end and that the replacement note rate will likely be SONIA plus a credit adjustment spread. We have not seen any of these changes completed to date in transactions rated by S&P Global Ratings.

CLO and repackaged securities (repacks)

Contacts: Shane Ryan, London, 44-207-176-3461, shane.ryan@spglobal.com, Emanuele Tamburrano, London, 44-207-176-3825, emanuele.tamburrano@spglobal.com 

As of September 2021, we have outstanding ratings on five transactions linked to sterling LIBOR: two cash flow CLO transactions, one synthetic CLO transaction, one repack transaction, and one small- to medium-enterprise (SME) transactions These are generally older, legacy transactions with LIBOR-linked coupons. For this small group, we have not received any information on plans to transition LIBOR coupons. Similarly to other "tough legacy" contracts, these transactions could find synthetic LIBOR a feasible alternative.

Japan

Contacts: Taku Shiozawa, Tokyo, (81)3-4550-8666, taku.shiozawa@spglobal.com; Toshiaki Shimizu, Tokyo, (81)3-4550-8302, toshiaki.shimizu@spglobal.com; Yuji Hashimoto, Tokyo, (81)3-4550-8275, yuji.hashimoto@spglobal.com 

The number of structured finance transactions referencing Japanese yen LIBOR has declined since the beginning of 2021 and as of September 2021 stands at 12 RMBS transactions totaling ¥24.1 billion and seven ABS repack transactions totaling approximately ¥178.65 billion in original debt Japanese structured finance transactions with exposure to LIBOR are showing progress in the switch to alternative rates, but operational challenges might occur along the way. Among structured finance transactions in Japan, 28 had LIBOR exposure at the beginning of 2021, including RMBS and ABS repack. Three transactions have been redeemed since the beginning of 2021, an alternative rate has been agreed for six transactions, and 19 transactions remain exposed to the phaseout of LIBOR. Additional clarity is needed for applicability of synthetic LIBOR to replace yen LIBOR.

Chart 5

Alternative rates for the six transactions for which transaction parties have already given consent are TORF and the Japanese yen Tokyo Interbank Offered Rate (TIBOR; see "Japanese Yen LIBOR Retirement: Alternative Benchmarks" published Aug. 5, 2021). Of the 19 transactions under consultation, we have been informed of progress toward a transition to alternative rates for seven, but concrete plans have not yet been finalized. For the remaining 12 transactions, detailed plans are yet to be reported.

Chart 6

Fallback provisions for the liability side of transactions in Japan are generally classified in one of two ways after a transaction with fallback provisions using an average of bank lending quotes is fully redeemed before the end of September 2021:

• The rate is fixed at the last LIBOR rate; or
• The transaction party selects the rate.

Although fallback provisions for 12 transactions are "fixed at the last quoted LIBOR rate," we understand from communication with transaction parties that many of these transactions are expected to switch to alternative interest rates via an amendment to bond documents. For the remaining seven transactions, a transaction parity has the right to determine a successor interest rate.

Chart 7

Latin America

Contact: Jose Coballasi, Mexico City, 52-555-081-4414, jose.coballasi@spglobal.com 

We expect the transition process to have a minimal impact on our structured finance portfolio in Latin America. This is because the LIBOR exposure in rated securitizations in the region is limited to three outstanding transactions totaling US$650 million as of August 2021. They are scheduled to mature prior to when three-month dollar LIBOR settings cease to be published after June 2023.

Australia

Contact: Kate Thomson, Melbourne, 61-396-312-104, kate.thomson@spglobal.com 

LIBOR exposure in rated securitizations in Asia Pacific, primarily in Australia, is very limited at 11 RMBS transactions totaling US$1.3 billion as of August 2021. These tranches that reference LIBOR are denominated in U.S. dollars. The tranches that don't have fallback language are older and, for the most part, fix LIBOR at the last published rate. There are five transactions in this category.

More recent issuance (i.e., 2020-2021 vintages) with coupons linked to LIBOR has included more robust fallback language that is expected to enable an orderly transition. We expect no impact on the majority of existing ratings for the handful of older (pre-2019) transactions documented well before the cessation of LIBOR was contemplated, as these transactions are most likely to be amended by noteholder agreement. The concentrated nature of investors and relative ease with which transactions can be amended, as well as the additional time until dollar LIBOR settings are scheduled to end in June 2023, makes this likely. The use of LIBOR in Australia for structured finance transactions is limited to liabilities, and generally to only one or two notes in a structure. There is one rated transaction that references pound sterling LIBOR, which ceases Dec. 31, 2021, and it is not yet clear how or whether it will be amended.

U.S. And Canada

U.S. structured finance exposure to LIBOR is significantly higher than all other regions combined, with nearly 4,500 transactions totaling about $696 billion, but unlike pound sterling, Japanese yen, Swiss franc, and euro LIBOR, most major dollar LIBOR settings are not scheduled to cease until after June 2023. Therefore, the progress in amending liabilities, regulatory guidance concerning consumer asset rate changes, and legislation is generally lagging behind that in EMEA and Japan, where the deadline is much sooner. Now that a term SOFR rate has been endorsed by the Alternative Reference Rates Committee (ARRC) and New York law is available with a legal safe harbor for switching to SOFR, we expect replacement rate discussion and activity to start picking up in the U.S.

The new securitizations using SOFR coupons that we're rated after July 2021 have utilized a compounded SOFR rate and not the term SOFR rate. This may speak to investor perceptions around these related but different rates, market liquidity, etc.

As legacy securitizations begin seeing rate changes, likely in 2022, we will aim to monitor the extent to which rates are switched on the assets and liabilities at the same time as well as the rates themselves and any spread adjustments. For consumer-based assets, such as mortgages or student loans, we note that ARRC guidelines call for a spread adjustment to be phased in over one year, while we are not aware of a similar phase in period for liabilities. While spread adjustments are small, the phased introduction of a spread adjustment may introduce some limited basis risk between assets and liabilities in securitizations, and additional analysis may be needed to determine whether this could rise to any rating impact.

CLOs

Contacts: Yann Marty, New York (1) 212-438-3601, yann.marty@spglobal.com, Jimmy Kobylinski, New York (1) 212 438-6314, Belinda Ghetti, New York (1) 212-438-1595, Belinda.ghetti@spglobal.com, Steve Anderberg, New York (1) 212-438-8991, stephen.anderberg@spglobal.com 

The U.S. CLO market is the largest active segment of the U.S. structured finance market with LIBOR exposure. S&P Global Ratings maintains ratings on approximately 976 CLO transactions, totaling about $364 billion as of Sept. 30. Substantially all of these transactions utilize either one-month or three-month LIBOR in the assets and liabilities. The Nov. 30, 2020, announcement that major dollar LIBOR phaseout dates were being delayed to 2023 did not materially shrink the rated universe of CLO transactions with LIBOR exposure because almost all related liabilities had (and continue to have) legal final maturity dates after June 2023 and new issue transaction volumes remain at record highs. Nonetheless, a large portion of the underlying loan collateral for these securities is expected to refinance and/or be amended well before June 2023, helping to reduce overall basis and litigation risk.

About half of the 976 CLO universe outstanding closed in 2020 and 2021 (a mix of new issues, refinancings, and resets). Chart 4 shows that liability fallbacks generally vary by vintage. These recent issuances have enabled managers to add stronger fallbacks to their transactions. While there have been market preparations for using replacement interest rates for LIBOR, including SOFR, we have not yet seen any new CLO liability issued on a SOFR index as we have in other sectors such as ABS and RMBS. This is the likely result of a corporate loan market that has been slow to transition away from LIBOR. The pace of transition in CLO asset and liability markets is poised to pick up in fall 2021, as banks will generally be prohibited by regulatory guidelines from entering into new LIBOR-based lending and related activities after December 2021. The July announcement of an ARRC-endorsed term SOFR rate combined with several newer credit sensitive rates (CSRs) may finally prompt changes to interest rates on leveraged loans.

Chart 8

CLO fallbacks are dominated by ARRC-style and manager discretion to select a representative rate 

Since our last published U.S. structured finance research on LIBOR exposure in fall 2020, the CLO market has experienced significant growth in new issue and refinance activity. While fallbacks on about 40% of outstanding CLO liabilities call for the collateral manager to select a replacement rate, another portion (approximately 50%) use ARRC-style fallbacks. ARRC-type fallbacks are likely to provide the most consistency in a transition away from LIBOR because of their objective steps to a new rate. While manager replacement rate selection is common, there could be variation in how managers apply new rates, what rates and spread adjustments they ultimately select, how soon rates are changed, and how much basis risk may occur between assets and liabilities. That leaves only a small portion, roughly 10%, of outstanding CLOs rated by S&P Global Ratings, with liability fallbacks that fix at the last quoted LIBOR rate. It is only this small portion of transactions that would likely be eligible for legislative relief under the New York LIBOR Assistance Law. Finally, less than a dozen of transactions have a specified replacement rate (such as prime or others).

The New York LIBOR assistance law is not applicable to most U.S. CLOs 

While the New York law may benefit a large portion of student loan ABS and legacy RMBS, it likely would only benefit a small portion (roughly 10%) of CLO transactions (mostly 2017 and earlier vintage) in which liability fallbacks go to a fixed rate up on LIBOR cessation. That's because other options (e.g., a specified rate, transaction party to select a rate or ARRC fallbacks) are not modified by the New York law.

The applicability of the New York law to CLO assets or leveraged loans is also limited. This is because most of these contracts specify that the administrative agent typically has the unilateral right to select a new rate, contain a specific rate, such as prime, or are governed by laws of a state other than New York.

Conversions to new rates on outstanding CLOs are expected to begin in 2022 

CLO transactions recently issued generally contain asset interest rate triggers that, if tripped, would cause the liabilities to switch away from LIBOR shortly thereafter. The combination of an ARRC-endorsed term SOFR rate plus bank regulatory restrictions on new LIBOR lending past December 2021 should cause a significant change in interest rates among leveraged loans in 2022. We believe reaching the 51% threshold on loan assets for some CLOs is likely to occur in 2022, in advance of the June 2023 dollar LIBOR phase out. Because the triggers are set at 51%, it is likely that there will be some transitional period of time during which most existing CLOs will be exposed to different rates on assets and liabilities. Equity holders and the most junior noteholders that rely on excess spread as a source of credit enhancement would be most exposed to any basis risk, which is not expected to be significant. New CLOs issued in late 2022 may not have the same basis issue to the extent that they begin warehousing and sourcing SOFR- or CSR-based collateral before issuing liabilities tied to the same benchmarks.

A key deadline is on the horizon for CLOs 

While the phaseout date for major dollar LIBOR settings is after June 30, 2023, there is another important milestone that is quickly approaching: According to a joint statement from U.S. bank regulators in November 2020, there should be no new lending or borrowing by banks using LIBOR after December 2021. With about two months remaining until that deadline, issuers are actively exploring alternative benchmarks for floating-rate debt used in CLOs. This is largely because virtually all CLO assets and liabilities are currently indexed to LIBOR.

Basis risk scenarios will gain importance 

It is impractical to expect all CLO asset and liability rates to switch simultaneously. Furthermore, they may not all switch to the same benchmark, which is why basis risk scenarios will gain importance from late 2021 and well through 2023 as more than 1,500 corporate loans (held in CLO portfolios rated by S&P Global Ratings) and about 976 CLOs transition their interest rates.

While the spread adjustments were published on March 5, 2021, for all 35 LIBOR settings, we will seek to understand from issuers and investors how these spreads may influence total liability spreads on both new and legacy transactions. ISDA set the spread adjustment based on a five-year median difference between dollar LIBOR and SOFR at each setting, which is a major positive factor in driving consistency for hedging exposures. However, for cash products like CLOs, not all investors and managers may measure basis risk in this fashion. Because we don't see all assets and liabilities changing rates from LIBOR at the same time, how collateral managers approach basis risk in 2022 will likely generate robust discussion among market participants. The New York law has a path to replacing LIBOR with SOFR plus a spread adjustment that creates a legal safe harbor against litigation, but a significant majority of CLOs will not be operating under this law given its provisions. Some mitigants to basis risk already exist in CLOs, such as payment in kind securities at the junior and mezzanine tranche levels.

Small- to mid-sized banks have been vocal about favoring alternatives to SOFR, such as CSRs. We'll be monitoring any uptake of such rates in leveraged loan market to the extent they are collateral on CLOs in order to assess any basis risk that may arise between assets and liabilities.

Basis risk scenarios start to emerge 

Because the LIBOR transition is a dynamic phenomenon with changes such as new regulations and laws, we are considering various scenarios in an attempt to capture potential ratings impacts across various outcomes. For the CLO market, a closer look at basis risk is warranted. Basis risk is the lack of alignment between benchmarks on a transaction's assets and liabilities and the possibility that one index could move away from another, draining cash flow or excess spread.

Most recent CLOs issued or refinanced since 2020 contain asset replacement triggers that enable liability rates to switch to a new index once 51% of the underlying assets switch to new benchmark rates. Because it is not practical for all underlying corporate loans to switch away from LIBOR at the same time given their diversity, we believe many CLOs will see these asset replacement triggers eventually hit, causing a switch in liability benchmarks to a new rate. Being set at 51% suggests that pools will temporarily have some degree of basis risk until the other 49% of assets receive interest rate benchmark modifications.

RMBS

Contacts: Allison Bernhard, New York (1) 212-438-1488, allison.bernhard@spglobal.com, Eugene Rozgonyi, Centennial, 303-721-4824, eugene.rozgonyi@spglobal.com, James Taylor, New York (1) 212-438-6067, james.taylor@spglobal.com, Vanessa Purwin, New York (1) 212-438-0455, vanessa.purwin@spglobal.com 

Legacy RMBS dominates LIBOR exposure 

Among domestic securitization sectors, legacy (pre-2009) RMBS contains the largest LIBOR exposure by transaction count with approximately 2,800 transactions and $149 billion outstanding as of September 2021. While this total has declined over time with roughly a 6% remaining pool factor, it has reduced slowly given a lack of significant clean-up calls and extended final maturity dates due to loan modifications. Most of these transactions are expected to remain outstanding after June 30, 2023, after which the major one-, six-, and 12-month dollar LIBOR settings will be discontinued. Given the size and breadth of this portfolio, there remains a fair amount of complexity in terms of the underlying risks posed by the LIBOR transition. Adding to the complexity, legacy RMBS can be exposed to LIBOR through liabilities only (11%), assets only (25%), or both assets and liabilities (64%). In cases for which assets are tied to LIBOR, they do not always represent 100% of the collateral , meaning variation across mortgage product types must be assessed transaction by transaction.

Chart 9

The new era RMBS sector has more robust fallbacks than the legacy sector 

Excluding legacy securities, we maintain ratings on newer RMBS transactions linked to LIBOR (about 155 transactions rated post-2009 totaling approximately $32.8 billion as of September 2021) and nearly all transactions rated by S&P Global Ratings issued since 2013. Not surprisingly, those issued since 2020 with LIBOR generally contain ARRC-style fallbacks for the liabilities, which we believe will contribute positively toward an orderly rate transition. Generally, in cases where we see liability exposure, the risk of an interest rate change is mitigated by other structural features, such as in credit risk transfer (CRT) transactions in which the direct debt obligations are of the sponsor, or in transactions for which liabilities are subject to the net weighted average coupon (WAC). Additionally, most that closed post-2009 have exposure on only the assets.

Chart 10

Liability fallback language in transaction documents typically contain a waterfall of multiple fallbacks. Fallback options include KTP discretion to select a new rate, bank polling such that individual quotes from multiple major banks are averaged to determine a rate, fix the rate at the last LIBOR rate, no remedy such that the transaction documents do not specify what happens if LIBOR is unavailable, and the more objective ARCC-recommended fallbacks with SOFR as the replacement rate. The fallback categories shown below represent what we consider the be the final fallback of the waterfall within transaction documents.

Distribution of ultimate liability fallbacks: new era and legacy sectors 

Chart 11

Chart 12

The New York law is beneficial for rate replacement on liabilities of many legacy RMBS 

The April 2021 New York law providing LIBOR assistance appears particularly helpful to many legacy RMBS transactions because the majority of them have liabilities governed by New York law and also have fallbacks that are absent, tied to bank polling, or fixed at the last quoted LIBOR rate. We believe that, of approximately 2,500 transactions that have liability exposure, about 75% may be eligible for the assignment of a replacement rate under the terms of the New York law. Even if a federal law does not pass, the New York legal framework results in significant risk mitigation on the liabilities for these transactions because it establishes a legal safe harbor in selecting a replacement rate. However, it is important to recognize that the New York law is not operative for transactions where the replacement rate decision has been clearly assigned to a transaction party, such as a servicer, master servicer, administrative agent, or trustee, where other interest rates have been specified in the governing bond documents, or where the terms of the transaction are governed by a different state. This means that the remainder of legacy RMBS transactions with liability exposure will likely proceed through the LIBOR transition without a state law providing explicit legal support and clarity.

On the asset side for legacy RMBS, the entity responsible for selecting a replacement rate is in some cases in question. The underlying mortgage documentation may indicate the "noteholder" is responsible for selecting rates, which may not be the servicer. Some servicers may interpret the situation such that trustees, in their role representing noteholders, have this rate replacement responsibility. Federal legislation would likely clear up conflicting views and potential disputes in this area. Additional focus will be needed on this portion of transactions to determine the new liability rates, spread adjustments for risk free replacement rates like SOFR, and any related changes on LIBOR-linked assets and their combined impact, whether it be incremental basis risk, investor disputes, or other issues.

The net WAC structural feature can limit basis risk 

Some additional factors that could impact basis risk include whether assets and liabilities switch to new rates with similar timing or are phased in at different intervals, whether added spread adjustments are the same between assets and liabilities, whether there are one-time legal fees or extraordinary trust expenses (ETEs) payable senior in the priority of payment, and in which cases net WAC caps will limit basis risk. Net WAC cap liabilities are not subject to paying more than the interest that assets generate. Most legacy RMBS liabilities with exposure to LIBOR are subject to net WAC caps. We expect legal fees associated with LIBOR transition-related activities of transaction parties to be ETEs (which may or may not be subject to an annual cap) that could potentially reduce cash flow available to bondholders. Given the large quantity of transactions compared to the limited number of trustees within the RMBS sector, it is possible that the impact will be spread over many transactions, limiting the impact of ETEs on a per-transaction basis.

Speculative-grade RMBS securities are generally more reliant on excess spread than investment-grade RMBS (all else equal) and are therefore more sensitive to any change to a transaction's interest rate basis. One of ARRC's recommendations for consumer assets (such as mortgages) is that spread adjustments for SOFR are phased in over one year, while a spread adjustment for SOFR on liabilities would occur at once. In existing securitizations, this timing difference could introduce some incremental basis risk.

Servicers within the RMBS space have indicated that they plan to adhere to the June 2023 timeline for transitioning rates on liabilities while taking direction for selecting a new rate from the master servicer, securities administrator, trustee, or other KTP when specified in the transaction documents. Servicers have also indicated they are considering the ARRC-recommended SOFR as an alternative rate to LIBOR on assets when they are the determining party but that they will still look to other transaction KTPs for guidance. Servicers are also monitoring industry guidance for spread adjustments with the use of SOFR on assets. Government-sponsored enterprises have issued substantial amounts of SOFR debt and provided detailed guidelines on accepting SOFR-based variable rate mortgages for pooling. Given their dominant influence in U.S. mortgage markets, SOFR is highly likely to be the primary lending rate seen in RMBS in lieu of dollar LIBOR.

Credit card, student loan, and unsecured ABS

Contacts: Matthew Monaco, New York, (1) 212-438-6263, matthew.monaco@spglobal.com; Kate Scanlin, New York, (1) 212-438-2002, kate.scanlin@spglobal.com, Bryan Albright, Centennial, (1) 303-721-4932, bryan.albright@spglobal.com 

The North American unsecured ABS sector has the third-largest exposure to LIBOR in domestic structured finance, behind legacy RMBS and CLOs, with 369 transactions containing this benchmark as of August 2021. This represents about $104 billion in current issuance outstanding. Of those 369 transactions, 351 have both asset and liability exposure or only liability exposure, with the remaining 18 transactions exposed only on the asset side. While there are several collateral subsectors within unsecured ABS, student loan ABS accounts for the majority of this exposure.

Within the student loan sector, transactions are concentrated among several large issuers, and the feedback from these entities to date has been that adjusting asset rates (on student loans) will not likely be controversial or difficult given loanholders' contractual ability to make rate changes. Current estimates are approximately three to six months to adjust asset interest rates, a process we expect to begin closer to the June 2023 deadline for the transition from U.S. dollar LIBOR. Of the 18 transactions with asset-only exposure, we do not foresee a significant ratings impact from the transition given the relative ease of selecting a new benchmark rate that approximates LIBOR without a need to seek noteholder approval.

Special allowance payments will potentially be addressed in federal legislation 

One unique feature in student loan ABS is the presence of special allowance payments (SAP) for transactions with Federal Family Education Loan Program (FFELP) loan collateral. SAP payments from the U.S. Education Department are calculated based on LIBOR and are designed to guarantee a specified yield to lenders of FFELP student loans. Because a large portion of outstanding student loan ABS contains FFELP collateral, the LIBOR transition includes the adjustment of SAP payments from LIBOR to another index. SAP payments can contribute to excess spread and require a change in law to amend interest rate references. Current draft federal legislation for LIBOR assistance contains language that aims to switch the index for calculating SAP payments from LIBOR to SOFR plus a spread adjustment. In December 2011, federal legislation was enacted to amend the index for calculating SAP to LIBOR, so there is precedent for such changes.

We believe the April 2021 passage of a New York law targeting LIBOR transition assistance offers significant benefits to the student loan ABS sector because approximately 78% of student loan ABS with LIBOR linked liabilities have fallback provisions to a fixed rate (last quoted LIBOR) if no action is taken. The New York legislation specifically targets such liabilities and overrides a fixed fallback rate with SOFR plus a spread adjustment while creating a legal safe harbor for the implementation of these rates. Not all transactions with liabilities that are governed by New York law can benefit from such provisions because only specific fallback types are eligible. We estimate this category to be about 21% for which a specific rate has already been identified, a transaction party has responsibility to select a rate, or ARRC-recommended fallbacks are included.

About one-third of student loan ABS liabilities is likely not governed by New York law 

Out of 369 exposed transactions, 118 contain liabilities that are not governed by New York law. Of this group, 89 transactions fix liability benchmark rates at the last quoted LIBOR rate, which introduces the potential for disputes. We are closely watching the progress of draft federal legislation, which could provide significant relief for these transactions. Some investors have already voiced concerns about implementing a transaction's fixed-rate fallback terms because these terms were originally intended to address a temporary, not permanent, LIBOR disruption, and this can be inconsistent with transaction floating-rate document disclosures and representations. Absent disputes, fixing liability rates in the low interest rate environment currently prevailing in financial markets would not necessarily impair transaction cash flow or ratings. However, fixing rates in a higher interest rate environment could pose challenges and negatively impact transaction excess spread. In contrast to the RMBS and CLO sectors, in which there are a large number of 'B (sf)' to 'BB (sf)' rated tranches that rely heavily on excess spread, the student loan sector consists mainly of transactions rated 'BBB (sf)' and higher, which are less dependent on excess spread as a source of credit enhancement.

In addition to student loan ABS transactions, 19 credit card transactions (14 U.S. and five Canadian) contain dollar LIBOR exposure in the coupons and, in some cases, in hedge agreements. We believe the risk associated with this group of transactions is low because many have an expected maturity date prior to June 2023 and liabilities are governed by New York law or contain robust ARRC-recommended fallbacks.

Besides outstanding exposures, in 2021 we rated a new unsecured ABS transaction that contained compounded SOFR in the liabilities, and we expect to see more alternative rates used across structured finance.

Non-traditional ABS

Contacts: Elizabeth Fitzpatrick, New York (1) 212-438-2686, elizabeth.fitzpatrick@spglobal.com, Ildilo Szilank, New York (1) 212-438-2614, ildiko.szilank@spglobal.com 

Nontraditional ABS encompasses a wide range of consumer and commercial securitized assets. These subsectors include whole business, aircraft, container, railcar, timeshare, small business, triple net lease, structured settlements, insurance premium, drug royalty, leveraged funds, and data centers. Approximately 14% of the more than 400 nontraditional transactions, or 55 transactions, have LIBOR exposure. The total amount is approximately $5 billion, primarily in the liabilities, assuming all revolving lines are drawn to maximum facility limits. All of these have legal final maturity dates that occur after June 2023, the scheduled phase-out date for major dollar LIBOR settings.

There is a concentration of variable funding notes in the non-traditional ABS sector 

Within this group of about 55 transactions, there is a concentration of approximately 15 transactions in the whole business and data center segments in the form of variable funding notes (VFN) that contain LIBOR coupons. These VFNs typically remain undrawn and have a limited number of lender counterparties/VFN providers, resulting in ample opportunity to modify terms and fallbacks to incorporate ARRC or ARRC-like language, if not already in the transaction documents. In addition, there is a recent aircraft loan securitization with a significant liability balance tied to LIBOR. However, the issue's transaction documents include ARRC-recommended fallbacks. We also rate eight structured settlement transactions from 2005-2008 vintages with unclear liability fallback language. Depending on the applicability of potential federal legislation, they may struggle to transition to a new rate.

We believe higher risk exposures exist among transactions with fallbacks relying on bank polling and those with no alternative interest rate provisions or unclear provisions. These transactions total about 35% by count. Because all of these transactions have bond documents that are governed by New York law, they would likely be covered by this legislation. This legislation likely removes the more disorderly outcomes. While the New York legislation does not override contracts where a transaction party selects a new rate, because the terms of the replacement rate selection are not homogenous, care must be taken by transaction participants to not transfer value between borrower and lender. There is a mix of servicer, trustee, and "administrative agent listed as the transaction party" charged with selecting a new interest rate in these cases. Within the large group of transactions in which one participant has contractual responsibility to select a replacement rate, we have not yet seen any significant amendments to change rates, fallbacks conditions, or ARRC-style fallbacks.

CMBS

Contacts: Michael Mott, Charlottesville, Virginia, (434) 987-8098, Michael.mott@spglobal.com; James Digney, New York, (1) 212-438-1832, james.digney@spglobal.com; Emily Strider (212) 438-0432, emily.strider@spglobal.com 

In the CMBS sector, we do not expect the risk associated with the transition from LIBOR to an alternate rate to be significant. Of the 400 U.S. CMBS transactions currently rated by S&P Global Ratings, 92, or 23%, have some level of exposure to LIBOR. Total exposures currently equal $39 billion outstanding. This rate of exposure appears to be holding steady, notwithstanding the fall in issuance during the COVID-19 pandemic.

As of September 2021, new issuance floating-rate transactions are still tied to LIBOR; however, these transactions contain the robust ARRC-recommended fallbacks. We have not yet seen any new issuance tied to a non-LIBOR floating-rate benchmark. Given regulatory restrictions against new LIBOR lending after December 2021, however, we would expect to see non-LIBOR issuance later this year, and certainly in 2022.

Our current assessment for CMBS transactions containing LIBOR is that the most common framework, present in about 41% of outstanding U.S. CMBS transactions, allows a KTP, usually the master servicer, to select the fallback rate based on prevailing market standards. Since there are now multiple SOFR rates (compounded, term) and other, newer rates in the U.S., the "market standard" may be open to interpretation. Because fallbacks are selected by a transaction party or by using the ARRC-recommended language in most cases, the New York law would not be operative for most CMBS transactions. We have identified fewer than five CMBS transactions to which the New York law might apply, given that only certain types of fallbacks are eligible for relief under this legislative solution.

About 19 outstanding transactions (20%) use the prime rate as the first-order liability fallback index if LIBOR is unavailable. Since late 2019, virtually all new floating-rate transactions have incorporated the ARRC-recommended fallback language for securitizations in cases where there is less transaction party discretion to select a replacement rate. Therefore, about 35% of outstanding U.S. CMBS transactions use the ARRC-recommended fallback language.

Unlike other types of structured finance securities, CMBS don't typically rely on excess spread for credit enhancement and are therefore less susceptible to new basis risk that could arise from changing interest rates on assets and liabilities that are not perfectly synchronized. All things being equal, this attribute of CMBS would likely lower their risk profile in the LIBOR transition.

ABCP and repackaged securities

Contacts: Dev Vithani, New York (1) 212-438-1714, dev.vithani@spglobal.com, Mayumi Shimokawa, New York (1) 212-438-2606, mayumi.shimokawa@spglobal.com, Cathy de la torre, New York, (1) 212 438-0502, cathy.delatorre@spglobal.com 

Asset-backed commercial paper (ABCP) notes are issued at a discount or on an interest-bearing basis at either a fixed or floating rate. In the U.S. and Canada, we view the risk of transitioning away from LIBOR to be minimal for floating-rate ABCP transactions because:

• Liquidity facilities and program level mitigants typically cover any interest related to LIBOR-based liabilities.
• To the extent sponsors have any LIBOR-based liabilities with a maturity date beyond the cessation of LIBOR, there is a redeemable component that would likely be exercised by the conduit administrator to pay noteholders in full prior to the transition date of June 2023.
• ABCP program documentation includes issuance tests to ensure the full payment of principal and timely payment of interest of ABCP notes by the liquidity provider or programwide credit enhancement provider rated at least as high as the ABCP notes.

For LIBOR exposure to the collateral pools backing ABCP, the potential basis mismatch between assets and liabilities is mitigated by the rollover concept, where the program issues new short-term debt to repay the maturing short-term debt and remain continuously invested in asset pools. In all cases, basis risk is absorbed by the liquidity providers, not ABCP holders. Also, historically, every individual asset transaction had some form of fallback language to a "base rate," which is typically the prime rate. As individual ABCP transactions have been renegotiated, amended, or replaced with new transactions, we have observed the inclusion of more robust fallback language regarding the transition away from LIBOR (for the benefit of banks, to the extent they need to fund transaction in liquidity).

Outside of the ABCP sector, we see LIBOR exposure to two publicly rated repack transactions via the liabilities and the hedge agreements. The first transaction is governed by New York law with no fallback to LIBOR and contains a swap in which the counterparty pays a fixed-rate floor and the underlying asset is fixed-rate. It appears that this transaction may benefit from the New York law, as we do not have a record of both counterparties signing on to new ISDA protocol. The liabilities in the second transaction are governed by Delaware law and closed in 2012 with an alternate reference rate to be selected by the collateral manager with consent from the administrative agent.

Auto loan and lease, dealer floorplan, equipment, and manufactured housing ABS

Contacts: Jennie Lam, New York, (1) 212-438-2524, jennie.lam@spglobal.com; Frank Trick, New York (1) 212-438-1108; frank.trick@spglobal.com 

The degree of LIBOR exposure in auto loan and lease, dealer floorplan (DFP), equipment, and manufactured housing ABS has been declining since 2019, as recent new ABS issued in these sectors have mainly used fixed interest rates and outstanding ABS with tranches benchmarked to LIBOR are being repaid. As of July 2021, we rated 23 transactions with LIBOR exposure totaling $2.5 billion outstanding across these four sectors (mainly in the liabilities). Our expectation is that, based on the current principal paydown of the LIBOR tranches, by June 30, 2023, when the publication of dollar LIBOR on a representative basis will cease, all but one of the 23 transactions may remain outstanding. For this particular transaction, New York law may not be operative, as the liability documents contain fallback language that provides that the servicer select an alternative rate.

Transactions in these sectors occasionally include bonds with interest rates benchmarked to one-month LIBOR. Usually, this tranche is a senior class and has a short weighted average life. In general, this tranche, usually class A-2, is paid off within two years of issuance. The outstanding DFP ABS rated by S&P Global Ratings that include LIBOR-indexed notes have expected maturity dates earlier than June 30, 2023. Based on historical experience, the DFP ABS have paid off by the series' expected maturity dates.

With respect to equipment and DFP ABS with the underlying assets benchmarked to LIBOR, the related issuers have indicated that, under the lease agreement for equipment transactions or dealer agreement for DFP transactions, the lessee or dealer acknowledges that the lender may unilaterally adjust the funding parameters at any time, including the interest rate or benchmark.

Related Research

• Scenario Analysis: Potential Effects Of LIBOR Replacement On U.K. RMBS Ratings, Sept. 1, 2021
• LIBOR Transition: Laws Won’t Eliminate All Uncertainty, May 14, 2021
• Japanese Securitizations: Time Ticking On LIBOR Transition, March 17, 2021
• European Structured Finance Market Accelerates Transition From LIBOR, Feb. 9, 2021
• SOFR Emerging As Alternative to LIBOR In U.S. Debt Markets, Dec. 4, 2020
• As The Deadline For The Transition From LIBOR Approaches, Work Remains For U.S. Structured Finance, Oct. 6, 2020