LIBOR: A transition unlike any other

The world is preparing to leave LIBOR behind. We walk through the ins and outs of this massive undertaking.

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December 6, 2021 | 3 minute read

About this episode:

In this episode, Director, Investment Research, Andrew Korz is joined by Tal Reback, Principal at KKR and member of the Federal Reserve Board and New York Fed’s Alternative Reference Rates Committee (ARRC), to discuss all things LIBOR-transition. They cover where things stand now, what still needs to be done before year-end and what a world without LIBOR may look like.

Transcript excerpt:  

Kara O’Halloran (00:06):

Welcome back to FireSide, a podcast from FS Investments. My name’s Kara O’Halloran, and I’m a Director on our Investment Research team here. And before we get into today’s episode, we want to hear from you. If you’ve tuned into FireSide before you’ve probably heard from Lara Rhame, our Chief U.S. Economist. We bring her on regularly to share her insights and outlooks, but now we want to know what you want to know. So if you have a question about anything relating to the economy or markets, send us an email at research@fsinvestments.com, and we will sit down to answer them all.

Kara O’Halloran (00:38):

And now to today’s topic, the world is leaving LIBOR behind at the end of this year. A transition that markets had been preparing for years. Over the last year and a half, our team here at FS has, in partnership with KKR, published a series of research pieces thoroughly chronicling the transition. Those are all available on our website, fsinvestments.com. But I’m excited today to bring you a conversation between Andrew Korz, a member of our research team here, and one of the foremost experts on the LIBOR transition, Tal Reback. Andrew, I’ll let you take it from here.

Andrew Korz (01:09):

Thanks for leading, Kara. My name is Andrew Korz. I work in our investment research department here at FS Investments, focusing on macro commentary among other things. I’m joined today by Tal Reback, a principal at KKR, where she focuses on the firm’s credit portfolios, leads the development of credit content, and most importantly for this episode, leads the firm’s global LIBOR transition effort. Tal also serves as a member on the Federal Reserve Board and the New York Fed’s Alternative Reference Rates Committee, which is the public/private working group helping to ensure a smooth transition from LIBOR in the U.S. Tal, welcome.

Tal Reback (01:44):

Thanks so much, Andrew, for having me.

Andrew Korz (01:45):

Sure. So let’s jump right in. So I want to start from the very highest level. Folks have been hearing about LIBOR going away for years now. The ARRC, which again, you serve as a member on, was formed in 2014 to address LIBOR’s issues. Since that time, the topic of the transition has popped up in the press intermittently when there have been milestones hit or new developments, but by and large, I think your average market watcher probably doesn’t have a great handle on this long and winding journey. The process of weaning the global financial system off LIBOR has been incredibly complex as you well know, and I’m sure we could sit here for hours dissecting it, but from a very high level, can you set the stage for us? Where do things stand in the move away from LIBOR right now – first globally, and then in the U.S more specifically?

Tal Reback (02:32):

Yes. So we are at the precipice, I would say, of the transition. So from a global standpoint, we are less than two months away from the cessation of all non-USD LIBOR currencies. And that would be GBP, Euro, Frank, and the Japanese Yen. You know, what we’ve really been seeing is an acceleration of people really knowing now that this is top of mind, especially as multicurrency facilities are remediating their documentation, or repricing, into the successor rates. You know, if you take a step back, like you mentioned, this is something that many market participants have been working on for a very long time, although some would be call it behind the scenes. And where we are, why I say we’re at the precipice, is because everything is coming together similar to our Rubik’s cube. It has continued to morph and change with different developments, different twists and turns.

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Andrew Korz, CFA

Executive Director, Investment Research

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