As previously discussed in this PubCo post, one of the risk areas that SEC staff have advised they will be monitoring and have urged companies to address—and soon—is the effect of the LIBOR phase-out. LIBOR, the London Interbank Offered Rate, is calculated based on estimates submitted by banks of their own borrowing costs. In 2012, the revelation of LIBOR rigging scandals made clear that the benchmark was susceptible to manipulation, and British regulators decided to phase it out by 2021. LIBOR has been used extensively as a benchmark reference for short-term interest rates for various commercial and financial contracts—including interest rate swaps and other derivatives, as well as floating rate mortgages and corporate debt. As cited by SEC Chair Jay Clayton, according to the Fed, “in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S Dollar LIBOR and…more than $35 trillion will not mature by the end of 2021.” (See also this PubCo post.)
You may recall that at the end of last year, SEC Chair Jay Clayton and Corp Fin Chief Accountant Kyle Moffatt were warning at various conferences about some of the risks the SEC was monitoring, among them the LIBOR phase-out, which is expected to occur in 2021. As reported by the WSJ, Moffatt indicated that “to the extent that the phaseout of Libor is material to a company,…we would definitely expect a company to disclose that fact and describe the implications of the phaseout, including any associated risks, to investors.’” (See this PubCo post.) But, in making that assessment and any related disclosure, what should companies consider?
Officials at the SEC all seem to be singing the same tune these days, emphasizing the need to amp up company disclosures regarding Brexit, the LIBOR phase-out and cybersecurity. As reported by the WSJ, Corp Fin Chief Accountant Kyle Moffatt, speaking at the FEI Current Financial Reporting Issues Conference, echoed the earlier informal guidance provided by SEC Chair Jay Clayton, Corp Fin Director William Hinman and Deputy Director Shelley Parratt that the SEC will be looking for enhanced disclosure on these topics where material. (See this PubCo post.) Given the onslaught of admonitions, companies would be well advised to pay attention.