US companies voice frustration banks aren't offering loans with Libor substitute as deadlines loom

US corporations are expressing frustration that banks aren’t extending loans tied to an officially endorsed Libor alternative even as global milestones loom for switching from the benchmark.

“We have a lot of loans to readjust and renegotiate,” Regina Ochev, an assistant treasurer for Prologis, a global industrial real estate company, said at a recent webinar*. “If truly by the end of the year we hope to finish this transition, we absolutely need to get started.”

With regard to Secured Overnight Financing Rates, a Libor substitute backed by a US Federal Reserve-sponsored panel overseeing the transition, she said: “We’ve not seen banks make any SOFR options available to us yet,” even after “extensive discussions.”

“Quite frankly, we’re disappointed,” Ochev said.

Jason Behnke, a Ford Motor assistant treasurer, said he “absolutely” agreed with her.

Ford has had “increasingly positive” talks with banks in recent weeks, he said, but “we really need to see the offerings. That’s what we’re looking for now.”

Thomas Hunt of the Association for Financial Professionals said a survey of members in early May found that 60 percent say they have “only cursory information, or no information, and don’t know about the transition” from banks.

“We also found banks somewhat reluctant to share details or a roadmap about transitioning,” he said. “Corporates need to have those conversations sooner rather than later, for sure.”

Letter to lawmakers

In an announcement this month by their trade groups, Hunt, along with Thomas Deas of the National Association of Corporate Treasurers and Tom Quaadman of the US Chamber of Commerce, sent a letter to key policymakers about the banks’ lack of responsiveness.

Many companies, the letter said, “struggle in obtaining from their lenders specific proposals and processes for how their loan agreements will be amended” and the “mechanics” of how SOFR will replace Libor.

The three associations participate in a corporate working group of the Fed-sponsored panel, the Alternative Reference Rates Committee, overseeing the move from Libor.

A survey of the 100 companies that make up this working group found that two-thirds haven’t been able to get “detailed proposals or timelines for implementations” from their banks, the letter said.

“We are concerned that by the time the banks have fully prepared transition materials and processes, [companies] awaiting that information would have little to no time to rework contracts,” the letter said.

Their letter was sent to US Representative Brad Sherman, head of a House Financial Services subcommittee, and the panel’s top Republican, Representative Bill Huizenga.

Sherman, a California Democrat, said at a hearing yesterday that he's working with other policymakers to draft legislation to address hitches in the Libor transition.

The letter also was sent to Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and Securities and Exchange Commission Chairman Gary Gensler.

The UK’s Financial Conduct Authority, which regulates Libor, said in March that all new one- and two-week US-dollar Libor settings won’t be provided or be representative after year-end, and that remaining US Libor settings would cease after June 30, 2023.

*ARRC: The SOFR Symposium, The Final Year; May 11, 2021.