SOFR

NABL sends detailed letter requesting guidance on interbank offered rates ruling

The deal priced into a market that has seen rising rates for municipal bonds along with record high oil and gas prices.

The transition away from Libor presents challenges for small issuers with fewer resources to evaluate legacy contracts.

Recommending Libor-linked securities triggers important disclosure and fiduciary obligations.

New York Federal Reserve President John Williams said the transition away from Libor “continues to be of paramount importance.”

The Financial Stability Board issued a statement April 2 affirming that it is sticking with plans to transition away from Libor by the end of 2021.

GASB will release on April 16 a list of delays to various initiatives because of the coronavirus pandemic.

Members of GFOA’s Debt Committee agreed Monday to form a working committee that will publicize the issues involved in the transition among the organization’s more than 21,000 members.

GASB’s final guidance on the Replacement of Interbank Offered Rates is expected to be issued in March, giving state and municipal governments plenty of time to make adjustments before Libor is phased out by the end of 2021.

In formal comments filed with the federal government and separately to GASB, municipal finance groups have given the regulators generally high marks.

Clayton described the Secured Overnight Financing Rate known as SOFR, as “a good risk free benchmark.”

The sections pertaining to public finance can be implemented immediately.

The proposed transition regulation addresses the possibility that such a modification of a debt instrument, derivative, or other financial contract could be a taxable transaction for federal income tax purposes or could result in other tax consequences.

Issuance using the new Secured Overnight Financing Rate has risen to $265 billion since the beginning of 2019.

Internal Revenue Service enforcement officials told NABL workshop attendees the service is hiring five new revenue agents, up from the current 20, and two additional tax law specialists.

The Connecticut Housing Finance Authority became the first housing entity to use the Secured Overnight Financing Rate when it issued $100 million of variable-rate bonds.

The Alternative Reference Rates Committee said the recommendations are part of its mandate to address risks in contracts that refer to Libor as part of the larger shift to the Secured Overnight Financing Rate (SOFR).

Fallback language is expected to be released before year-end by the Alternative Reference Rates Committee convened by the Federal Reserve and ISDA.

The muni market has been slow to embrace SOFR but the existing Libor benchmark is set to cease publication in 2022.

Libor based municipal debt stood at $47.6 billion at the end of 2018, or about 1.3% of the overall muni market.