LIBOR Challenger Embraced in Debut Commercial Paper Transaction
“You should expect to see additional SOFR-linked deals across a broad spectrum of issuers.”
Barclays Plc has become the first bank to issue commercial paper tied to the new benchmark that’s been designed to succeed LIBOR in the dollar funding market.
The British lender on Friday sold US$525 million of the short-term debt, which will be linked to the new secured overnight financing rate, or SOFR, according to a Barclays spokeswoman. The borrowings took place via its flagship asset-backed commercial paper conduit, Sheffield Receivables Corp.
“Investor response was immediate and fairly broad across different types of investors,” Joe Muscari, head of securitized portfolio management at Barclays, said about the bank’s commercial paper deal. “Our support of SOFR with these issuances is just a recognition that this is the direction the industry is headed.”
SOFR, which was developed by the Federal Reserve Bank of New York as a dollar-market alternative to the beleaguered London interbank offered rate (LIBOR), has been gaining traction recently with financial institutions. Fannie Mae, Credit Suisse, and the World Bank have all sold other types of SOFR-linked debt. Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.
SOFR was set at 1.95 percent for Friday, up one basis point from the previous day. Overnight dollar LIBOR for the same day was 1.91888 percent.
The new benchmark is calculated based on overnight loans collateralized by U.S. government debt. LIBOR, on the other hand, is derived from a daily survey of large banks that estimate how much it would cost to borrow from each other without putting up collateral.
“You should expect to see additional SOFR-linked deals across a broad spectrum of issuers,” said Chris Conetta, managing director of U.S. rates trading at Barclays. “These will likely include bank issuers as well as other types of borrowers in the short-term debt markets. Both issuers and investors have a vested interest in seeing SOFR become an established and liquid market.”
From: Bloomberg
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