LIBOR Transition
Given the recent changes over the last couple of years in the financial markets and in line with the recommendations given by international regulators, CAF is currently in the process of substituting the LIBOR rate.
For several decades, the London Interbank Offered Rate (LIBOR) has played a fundamental role, being the main interest reference rate for the financial markets. However, banks, authorities, and international regulators have suggested searching for alternative rates over the last couple of years.
In order to develop and implement the replacement of the LIBOR rate, the Alternative Reference Rate Committee (ARRC) was created. The ARRC is composed of private sector representatives and regulators and identified the Secured Overnight Financing Rate (SOFR) as the best option for the LIBOR replacement.
CAF, after a rigorous analysis prepared by a working group tasked, identified the Term SOFR as the best alternative to replace the USD LIBOR for new loans starting the 1st of January 2022. It's important to highlight, in summary, the main reasons for CAF selecting this rate:
- It does not represent a significant change in the administrative processes of the different parties involved, given that, operationally, the term SOFR rate is similar to the LIBOR. Rate is known at the beginning of a period and can be consulted on authorized platforms (CME Group y Bloomberg. For more information go to https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html).
- Interest income can be calculated with the same certainty and anticipation as LIBOR.
CAF’s operations in USD with LIBOR rate that have not matured before December 31st, 2021, may continue using that reference rate until June 30, 2023, which is the date the rate will stop being published. It's important to note that for these operations corresponding amendments with fallback language will be included in the contracts that will allow for transition to Term SOFR.
If you have specific inquiries related to operations, you may contact your business executive at CAF.