Last month we highlighted the giant leap in that Associated British Ports were looking to amend their LIBOR linked bond to SONIA. Yesterday ABP announced that their Consent Solicitation had passed and the amendment had taken place. This is a reform milestone.
What's the significance?
This marks the first time any LIBOR linked bond has been amended to a new Risk Free Rate, globally. It's also the first time a corporate will start paying Compounded Daily SONIA on a bond.
In the FCA's words, "As this successful conversion shows, both issuers and investors can benefit from removing a dependency on LIBOR given its future disappearance after end-2021”. “This establishes a model that other issuers and their investors can follow.”
How did we price it?
At 1pm yesterday, a linear interpolation of the 3y and 4y 3m LIBOR vs SONIA basis (taken from ICAP screen ICAB9 on Bloomberg) was added to the existing margin. This took the floating rate from 3m LIBOR + 2.50% to Compounded Daily SONIA + 2.648%.
No consent fee was paid to investors.
This pricing method was fair, transparent and left both ABP and investors in an economically equivalent position.
With this precedent, we expect more corporates to become comfortable with paying interest on a Compounded Daily SONIA basis. We’ve received strong interest in the NWM SONIA Realised Rate Calculator as corporates become more engaged on the topic. The next new corporate SONIA linked transaction may not be in the bond market as corporate GBP FRNs are rare, but we may see loans or private placements in the near future.
We also expect more issuers to look into the options to amend their existing LIBOR linked debt to SONIA. The pricing mechanism we've used with ABP is applicable for any debt type. Whilst the Consent Solicitation method was effective in this case, other methods are likely to be required in some other situations.
NWM was the Solicitation Agent for ABP's trade and we continue to be a market leader in LIBOR transition. If you would like to discuss this trade or the topic more broadly please get in touch.
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Phil Lloyd - NWM Sales
Luke Hasham-Smith - NWM Corporate Financing & Risk Solutions
Andrei Irimia – NWM Hybrid Capital & Liability Management
Veenay Chheda - NWM Hybrid Capital & Liability Management
Adrian Garnon – NWM Credit Sales