Refinitiv Benchmark Services (UK) Limited (RBSL), the administrator of CDOR, today reaffirmed that all three tenors of CDOR will cease to be published after June 28, 2024. No synthetic CDOR rate will be made available or be published after RBSL ceases CDOR.
Market participants that have financial contracts referencing CDOR (or BAs) need to be prepared to transition these contracts to CORRA, or Term CORRA (as applicable).1 This notice consolidates important information for the transition of:
- Loans
- Derivatives
- Cash securities
Loans
Borrowers that have loan contracts referencing CDOR and/or BAs will lose the ability to draw by way of these rates after June 28, 2024. Unless the underlying loan agreements have already been remediated to transition to Daily Compounded CORRA, Term CORRA or another alternative reference rate, borrowers will be forced to default to other borrowing options available to them under their loan agreement (if available).
Market participants should be aware that the existence of fallback language in their loan agreements does not usually allow a loan to automatically transition to Term CORRA and/or Daily Compounded CORRA. The CARR-recommended CDOR loan fallback language that was incorporated in many loan agreements was always intended to provide a mechanism for transitioning loan agreements away from CDOR and/or BAs but did not contain the CORRA borrowing mechanics to allow the loan agreement to automatically transition. Loan agreements with this fallback language still need to be updated to specify the necessary conforming changes to enable borrowing by way of Term CORRA and/or Daily Compounded CORRA. These conforming changes can usually be added by simple amendment, as opposed to requiring a full amendment and restatement of the loan agreement.
While not strictly required under the CARR-recommended loan fallback language, best practice for Administrative Agents implementing conforming changes is to consult and work with the borrower (and where appropriate on a case by case basis, the broader loan syndicate for syndicated loans) to ensure the new loan mechanics work for all loan parties involved.
Market participants are strongly encouraged not to wait and to remediate their lending documents as soon as possible to avoid any rush and potential constraints on legal resources as we approach cessation.
See below for guidance on transitioning derivative hedges tied to CDOR-based loan facilities.
Derivatives
Cleared derivatives
Market participants that have cleared derivatives contracts that reference CDOR will have their contracts automatically converted to Daily Compounded CORRA, based on the ISDA fallback rate, on the specific date determined by each central counterparty. For contracts cleared on the CME, the primary conversion date is May 17 and for contracts cleared on LCH the conversion will take place over the June 8-9 weekend. Please see the links below for more information:
Non-cleared derivatives
Non-cleared derivatives contracts still outstanding on June 28 that incorporate ISDA’s 2020 IBOR Fallbacks Supplement, or that are subject to the 2021 ISDA Interest Rate Derivatives Definitions will be subject to the ISDA fallback methodology referencing Daily Compounded CORRA (calculated in-arrears) plus the spread adjustment published by Bloomberg on May 16, 2022.2 Those market participants that have not yet done so are encouraged as soon as possible to sign ISDA’s 2020 IBOR Fallbacks Protocol to ensure that the ISDA fallback rate is incorporated into all legacy transactions. Alternately, bilaterally amending these contracts from CDOR to Daily compounded CORRA is also an operationally efficient option.
Derivatives hedging loans
If the derivative is associated with hedging a CDOR-based loan, it is best practice that all implications of transitioning of both the loan and derivative hedge be considered and discussed jointly by lender, hedge provider and borrower/hedger in consultation with one another, including any potential impact on hedge effectiveness and pricing. The best practice for bilateral derivatives that hedge loans is for both to be aligned. In determining the appropriate conventions to be used, among them the lookback period for both the loan and hedge, it is reasonable to consider the modification of the loan lookback period from 5 days (loan convention) to 2 days (ISDA derivative convention) where deemed appropriate as it will help minimize any potential changes to the borrower’s fixed rate.
Cash Securities
CARR recommends that issuers and their respective investors assess the adequacy of the existing fallback protection provisions in their respective underlying documentation to ensure that a benchmark change from CDOR after June 28 is adequately provided for. If the fallback language is not deemed robust enough, issuers should address this with their legal counsel. Approaches may include:
- Work collaboratively (where possible) to restructure or amend the terms of the securities through direct consent or a consent solicitation process to include improved fallback language for both the coupon and the timing of payments bringing them in line with CARR’s recommended fallback language; or
- Issue a statement of intent that they will, if necessary at a future date, seek consent to amend the terms of the securities to reflect CARR’s recommended fallback language; or
- At the discretion of the issuer, and after an evaluation of the economic impact and risks, the issuer may choose to call or tender the affected securities prior to the cessation of CDOR.
For all cash securities except NHA MBS, CARR’s recommended fallback was published on July 6, 2021.3
Issuers are also encouraged to provide CDS Clearing and Depository Services Inc (or through any other public means) the necessary information to publish details, through the CDS Bulletin Service (or equivalent), of their specific CDOR fallback for each issued security. Investors are encouraged to review these details to ensure that they fully understand the changes to coupon calculation going forward.
For CDOR based NHA MBS securities, given their unique characteristics, CARR amended the recommended fallback on November 30, 2023 to align the fallback calculation methodology with those of newly issued CORRA-based NHA MBS. For those NHA MBS securities that were issued before November 2020 and therefore do not have any fallback language, issuers and investors are encouraged to work proactively to incorporate the fallback recommended by CARR and as further set out in the Appendix to CMHC’s Advice No. 20 (Advice to approved issuers) into existing contracts.
Participants can refer to the following additional CARR documents for further information on the transition from CDOR:
- Call to action for CDOR/BA borrowers
- Transitioning Loans from CDOR to CORRA – Best Practices
- Analysis and Recommendations on CDOR Legacy Securities
- CDOR Transition Frequently Asked Questions
Please also see the supervisory guidance on the CDOR transition provided by the Office of the Superintendent of Financial Institutions in May 2022 to federally regulated financial institutions and federally regulated private pension plans. The Canadian Securities Administrators have also highlighted the importance of market participants being prepared to transition from CDOR, including adhering to the ISDA 2020 IBOR Fallbacks Protocol.
About CARR
Canada established CARR, a working group sponsored by the Canadian Fixed-Income Forum, to coordinate Canadian interest rate benchmark reform. CARR’s mission is to ensure Canada’s interest rate benchmark regime is robust, resilient and effective in the years ahead. Over the coming transition period, CARR will support the transition from CDOR to CORRA as the key Canadian interest-rate benchmark.
Visit CARR’s webpage for up-to-date information on the transition, including all of CARR’s key documents, and to sign-up to receive email updates from CARR.
Market inquiries
CARR co-chair
Senior Policy Director
Financial Markets Department
Bank of Canada
CARR co-chair
Managing Director and Vice Chair
CIBC Capital Markets
Media inquiries
Media Relations
Bank of Canada