After LIBOR: Pricing Benchmark Convention for Fixed Rate ABS

Market Survey Request and Key Takeaways from SFA Roundtable

Survey Request

Securitization Issuers, Investors and Broker-Dealers: Your Input is Needed.  This survey seeks your view on the benchmark convention that should be used for pricing and quoting relative value of fixed rate asset-backed bonds in the primary and secondary markets after the market transitions away from the LIBOR Swap Curve. 

Background

The impact of the LIBOR transition on new and legacy floating rate structured finance products has been the primary focus of our market. However, LIBOR’s end will also bring a significant change to fixed rate structured finance products which are priced and quoted primarily off a swap rate curve that’s derived from LIBOR-based future contracts. Thus, it is imperative for the market to come together as it has in the transition of floating rate LIBOR products to build an agreed market consensus solution.  Without market consensus around a replacement pricing benchmark, the market could experience initial confusion.  And, if sustained, this confusion could negatively impact liquidity and pricing levels in both the primary and secondary markets. This is a particular concern for the ABS market which has become increasingly fixed rate. In 2012, fixed rate ABS contributed 63% of that year’s new issuance. By years 2020 and 2021, fixed rate ABS represented 96% of total new issuance, according to Deutsche Bank Securitization Research.

Key Takeaways: SFA Roundtable

SFA members convened over 100 members including investors, issuers, broker-dealers for a December 28^th roundtable to discuss this needed market transition away from the LIBOR Swap Curve. The roundtable featured an interactive and robust dialogue on a number of important topics related to the transition of pricing and valuing structured finance bonds in the primary and secondary markets.  Full details are available here.