Après LIBOR: Black Swan or Y2K

 
S&W Client Advisory
June 29, 2018

A practical guide to the cessation of LIBOR and the transition to a new replacement benchmark rate.

Unquestionably, the London Inter-Bank Offered Rate ("LIBOR")1 is an integral part of nearly every type of financial product available in the financial markets worldwide, from relatively simple consumer products to the most complex and sophisticated structured commercial products and derivatives in the capital markets. And despite being tainted by the recent manipulation scandal,2 the financial industry until recently generally believed that LIBOR should be reformed to continue as the global pricing benchmark in all five of its current iterations: US dollar, UK Sterling, Euro, Swiss Franc, and Japanese Yen, all of which are quoted in seven different tenors or maturities.3

END OF LIBOR

However, the growing scarcity of actual interbank unsecured term money market funding since 20084 and the growing reluctance of the LIBOR panel banks, because of potential liability and reputational concerns, to offer "expert judgment" or "market based" observations without a basis in actual interbank transactions, has led the UK Financial Conduct Authority ("FCA"), which now regulates LIBOR5, to publicly acknowledge that "the survival of LIBOR on the current basis...could not and would not be guaranteed" after December 31, 2021 ("Cessation").6 Other national financial regulators have also concluded that LIBOR must be replaced with an alternative benchmark rate based firmly on actual verifiable trading transaction data from relevant market participants in a "sufficiently active" market of substantial volume, and therefore less susceptible to manipulation.

ALTERNATIVE BENCHMARK

In the US, the Board of Governors of the Federal Reserve System has brought together various US market participants to form the Alternative Reference Rates Committee ("ARRC") under the auspices of the Federal Reserve Bank of New York (the "NY Fed") with the mandate to identify a set of preferred US dollar risk-free rates as sustainable alternatives to LIBOR.7 Beginning in November 2014, ARRC was asked by the regulators to: identify an acceptable risk-free (or nearly risk-free) alternative reference rate consistent with existing IOSCO principles8 regarding the "rate's construction, governance, and accountability;" consider how to assure that benchmark-referenced contracts are properly designed to deal with material alteration or cessation of an existing or new replacement rate; develop a plan outlining an adoption process for market participants and their regulators to assure voluntary acceptance and use of the new benchmark; and establish an expected timeline for implementation of the new benchmark and create observable measures of success.9 Throughout this on-going process, ARRC has been actively engaged in work with the International Swaps and Derivatives Association (ISDA) which is a non-voting participant of ARRC. Recognizing that regulators have a responsibility to ensure that the use of reference rates "not pose undue risk to the institutions…, to market integrity or overall financial stability", ARRC assembled an Advisory Group of different LIBOR end users "to ensure that its recommendations reflected a wide consensus of market participants."10 Advisory Group membership is organized into several specific cash product and derivatives working groups. On June 22, 2017, ARRC announced its identification of the Secured Overnight Financing Rate as the consensus best practice rate11 and in October 2017 adopted a staged plan setting forth the "specific steps and timelines designed to encourage use of its recommended rate" in the cash and derivative markets ("Transition Plan").12

Then, as previously scheduled, the NY Fed announced on April 3, 2018 that it had begun:

publishing three reference rates based on overnight repurchase agreement (repo) transactions collateralized by Treasury securities. These rates are the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR), and the Tri-Party General Collateral Rate (TGCR). The SOFR was identified by the Alternative Reference Rates Committee in June 2017 as its recommended alternative to U.S. dollar LIBOR for use in certain new U.S. dollar derivatives and other financial contracts.13

Similar initiatives have been undertaken in the UK, the EU, Japan and Switzerland to replace their respective currency IBORs with a risk-free (or near risk-free) reference interest rate for GBP, EUR, CHF, and JPY transactions, respectively, and each initiative has, to date, provided at least one secured or unsecured proposal for its subject currency. Unfortunately, these five separate currency specific efforts will yield five different independent benchmarks, not a single global benchmark rate as IBOR is now. How this fragmented approach to national benchmarks will affect the global financial markets cannot be predicted.

TRANSITION

Yet identifying and publishing new alternative reference rates are only the first steps in the global process of replacing LIBOR as the international benchmark. The complexity and enormous challenges inherent in transitioning to new alternative reference rates as benchmarks before Cessation will involve a considerable investment of time and coordinated effort by, as well as great expense and risk to, market participants in the cash and derivative markets in initiating, conducting, and completing (as well as educating market participants about) all of the necessary disparate initiatives outlined in, and timelines set in ARRC's Transition Plan for the myriad of cash and derivative products and their related market sectors across the financial markets, including:

MARKET PARTICIPATION AND CONSENSUS

While ARRC has produced its ambitious Transition Plan, it is the innumerable borrowers, lenders, syndicate parties, investors, bond and note holders, issuers, investors and other market participants in the global financial markets, who hold more than $100 Trillion of loans, bonds and floating rate notes, short-term instruments, securitized products, deposits and other financial contracts, as well as the counter-parties to hundreds of Trillions of dollars in over-the-counter and exchange-traded derivatives using USD LIBOR15 (which with GBP, EUR, CHF and JPY IBOR derivatives and non-derivative financial contracts, represent a notional aggregate amount of approximately US $373 Trillion), who must accept and successfully transition their floating rate cash products as well as derivatives to the new benchmark rates within the staged timelines of the Transition Plan before Cessation. In a concerted effort to coordinate the work of disparate market participants by focusing them on the issues, obstacles and possible solutions, a group of trade associations (the Association of Financial Markets in Europe (AFME), International Capital Markets Association (ICMA), the Securities Industry and Financial Markets Association (SIFMA), and its asset management group (SIFMA AMG)) together with ISDA joined together in response to regulators’ request for the engagement, help and support of end users of LIBOR,16 and in February 2018, the trade association group issued a White Paper that provides: a survey of the current state of the financial regulators' plans; the work of public/private sector groups; and a roadmap of the challenges faced in the transition.

RISK MITIGATION

To avoid (or at least minimize) the impact of Cessation on the floating rate cash products and derivative instruments in its portfolio, any party to a LIBOR based contract or derivative product ("LIBOR Parties") needs to focus its attention on and anticipate some of the risks embedded in its own portfolios that may arise during the Transition as well as from LIBOR's eventual but inevitable Cessation. Given the immense size and infiltration of LIBOR in the global markets since its inception as a benchmark in 1969 and the expected resistance in the market from some participants, unanticipated obstacles and concomitant risks may well be encountered as an unintended consequence of some developments in the transition away from LIBOR and the attempt to replace it with SOFR in one or more floating rate cash products as well as derivative contracts in multiple interrelated markets. The Transition Plan can only succeed if the planned sequence of steps leading up to the derivatives and cash product markets’ acceptance of the benchmark rate is accomplished in the appropriate sequence as envisioned within the critical timeline.

Unfortunately, if LIBOR publication is temporarily interrupted or unavailable, there exists no uniform trigger to a fallback alternative rate in the market. These trigger fallback provisions vary as often within lenders’ organizations as they do among different lenders. Extant agreements usually provide for a short term alternative mechanism for determining the unsecured interbank lending rate either directly from the usual LIBOR quoting banks or specifically designated "reference" banks, but if such determination is not possible in a market disruption, most agreements then default to using the prime or base rate, or the effective fed funds rate (outside of US, the lender’s cost of funds). It was never contemplated in these LIBOR agreements or derivatives products that a permanent replacement to published LIBOR would be necessary; and being standard boilerplate, the fallback provision for such a highly unlikely event was rarely the subject of any negotiation. Thus, every agreement will need to be identified, its terms re-negotiated and amended to substitute the new replacement rate with the consent of all of the parties to the contract-whether bilateral or multilateral.

Thus, notwithstanding that Cessation is more than three years in the future, the best way to mitigate the risk of failure for LIBOR Parties is to undertake an in-depth examination of their portfolio of LIBOR-referenced assets to identify floating rate cash products as well as derivatives and catalogue them to create a database of the specifics of their maturity (including extensions), any additional obligations in the governing documents that may be tied to LIBOR (e.g. rate cap or swap), their contractual LIBOR fallback arrangements and if fallback is inadequate or nonexistent, the rate change consent requirements, if any, in the applicable governing transaction documents. It is critical and prudent that each market participant focus on the establishment and training of a separate LIBOR team with the requisite expertise to conduct the necessary due diligence, manage and organize the data collection, isolate bespoke fallback provisions, perform a detailed cost analysis, determine the possible value transfer, monitor the new replacement rates in the origination, securitization and derivatives markets, and analyze the overall impact of Cessation on the LIBOR portfolio as well as the transition to SOFR and report directly to senior management to assure organizational consistency of approach internally and externally.

Caution should also be exercised in the origination of new cash product contracts which would be adding to the pre-Cessation legacy portfolio of LIBOR Parties. LIBOR Parties should endeavor to adopt uniform fallback triggers aligned as closely as possible to any fallback triggers being developed in the ARRC's Working Groups and ISDA, or if none are then available, which at least conform to the more robust fallback triggers being developed by other LIBOR Parties currently active in the market taking Transition as well as Cessation into account in their drafting. But, at all costs, LIBOR Parties should ignore all advice, or counterparty requests, to create new, or to continue to use, bespoke provisions that will result in its portfolio becoming more problematic in the coming Transition with increasing exceptions to uniform new benchmark conversion within its own book. The best mitigation strategy is to continue to monitor the progress and publications of ARRC in the implementation of its Transition Plan.

ISDA INITIATIVES

At present, ISDA is working with the ARRC working groups to develop fallback triggers for derivatives contracts at the "definitive and publicly known" permanent discontinuance of LIBOR; but there are many market participants who have expressed serious concern that fallback triggers should also be developed simultaneously for LIBOR based cash products in addition to the four derivative contracts focused trigger scenarios that have been developed and are currently being proposed by ISDA. Having common uniform fallback triggers for both cash and derivatives products would synchronize the transition from LIBOR and allow different product markets to convert simultaneously. If the entire market were able to convert to the new benchmark on a consistent basis, then it would avoid the real risk of a mismatch in the rates between cash products and derivatives, e.g. loans and related derivatives contracts triggering at different times, or the derivatives converting but the related loans not converting, or some asymmetric combination when only part of each market converts. ARRC has acknowledged that such divergence can cause significant dislocation in the markets and that cash product groups should now coordinate with the derivatives products groups in the development of the appropriate fallback triggers for cash products to add to ISDA’s proposed fallback triggers.17

Some market participants have commented that that they would like fallback triggers that convert away from LIBOR to the new benchmark when it is recognized by the market as an industry standard. But that begs the question of acceptance in which market by which industry. The issue was succinctly described by BlackRock as a "chicken or egg problem" stating that "investors will not adopt...(alternative reference rates)…if liquidity is insufficient, but sufficient liquidity will not develop if investors do not adopt ARRs."18

Without question, liquidity will be the single most important step in the Transition from LIBOR. The successful and sustained growth of swaps and futures for SOFR in an active derivatives market will be necessary to assure that there will be sufficient robust trading activity to support the cash products referencing the new replacement benchmark rate. And that growing liquid trading will eventually permit a SOFR term curve to be derived from observation of longer term trades.19 Yet there is still the issue of the compensating credit embedded in unsecured LIBOR that is missing in secured SOFR. How that compensating credit spread will be derived, calculated and adjusted, or whether it will be static or dynamic or absent, or who will be responsible for creating and monitoring that spread, will be the subject of a public consultation on credit spread methodology which is being released by ISDA.20 However, to the extent that any avoidable value transfer can be mitigated or prevented in the transition from LIBOR, the compensating credit spread must be an integral part of the eventual replacement benchmark if it is to be a reasonable equivalent to LIBOR in cash or derivatives contracts. SOFR plus the compensating spread can be characterized for those purposes as the SOFR Index.21

TAX CONSEQUENCES

A relatively significant, but oddly rarely discussed, consequence of the transition from LIBOR to SOFR or any replacement benchmark is the possibility that changing (modifying) the interest rate on debt instruments, including variable rate debt instruments, may trigger a "sale or exchange" transaction with the attendant tax consequences under the U.S. Internal Revenue Code.22 However, if a modification of obligations occurs automatically by operation of the express terms of, or the exercise of an option contained in, the debt instrument, it would generally not be deemed a taxable modification for IRS purposes.23 While that exemption should work generally for new debt instruments expressly hardwired by incorporating new fallback language, the modification risk would exist when a legacy debt instrument is amended to add the fallback trigger to SOFR or the replacement benchmark.24 It would be prudent for market participants to seek a market-wide exemption from the Internal Revenue Service with respect to the potential US tax consequences in the case of the transition to SOFR or any other designated replacement benchmark before LIBOR Parties engage in a wholesale conversion (or modification) of their existing non-hardwired debt instruments to the alternative benchmark in existing Libor based debt instruments. Although the rate differential may not trigger the sale or exchange tax consequences, given the potential for LIBOR to continue after Cessation with a possible different calculation, prudence would dictate having the IRS confirm that adopting the best practice replacement rate recommended by the financial regulators should not be a taxable event. 

CAPITAL MARKETS IMPLICATIONS

Beyond each market participant’s own analysis of the risks which may result from the discontinuance of LIBOR to their portfolio and the transition to the replacement reference rates, including: the effect of inconsistent, inadequate or missing fallback provisions; the potential risks in any attempt to amend cash and derivative contracts; possible impact upon liquidity; long term asset valuation shift; a potential disconnect between cash and derivative product markets; market disruption etc. such analysis may, depending on the circumstances, also need to be disclosed to any investors under the securities laws to the extent applicable within its portfolio including in its securitization of affected assets.

MARKET DISRUPTION

As the most recent financial crisis demonstrated, financial markets are interconnected and dependent in unexpected and sometimes unintended ways. The sophisticated institutional counterparties in the derivatives markets, who are usually governed by market protocols promulgated by ISDA, are very different players from the commercial loan borrowers and light years away from average consumers who will be affected by the transition from LIBOR. The risk of legal disputes and reputational damage is inevitable in any transition possibly affecting a value transfer within a $373 Trillion market. Syndication agents, lead lenders, co-lenders, participants or other parties, in intercreditor arrangements may be unable to agree on the transition among themselves or incapable of doing so for purely operational reasons. Moreover, instructions given by lenders or trustees to third party loan servicers who either refuse to be the party responsible for communicating the implementation of the Transition instructions or demand indemnities against liabilities for implementing such instructions may further complicate Transition. Thus, the Transition will unavoidably be operationally complicated and potentially extremely contentious.

ANTITRUST CONCERNS

As with any industry-wide interaction and consensus building process, there is the risk of a perceived violation of the antitrust laws as well as potential conspiracy claims both in the U.S. and in foreign countries, especially as financial institutions gather to discuss market pricing issues such as interest rates and spreads. External discussions held by or among teams as well as individuals should only be conducted with consent and clearance of antitrust and bank compliance counsel which should also work directly with the internal LIBOR team to assure proper compliance with Dodd-Frank and other federal regulatory regimes. In this regard, ARRC has issued Formal Antitrust Guidelines to its members and Associated Working Groups, which industry groups and market participants should also adopt and strictly observe in the conduct of their formal and informal discussions, meetings, conference calls and correspondence, electronic or otherwise, both internally and externally and should ensure strict compliance by all personnel.25

CONTINUING LIBOR

There has been continuing discussion of the possibility of keeping LIBOR alive after its Cessation (as a regulated rate) for a variety of perceived benefits to the market and its participants. While the FCA will no longer compel panel banks to sustain LIBOR after Cessation, LIBOR may not simply cease to exist because some market participants, including the LIBOR Administrator, the International Exchange Benchmark Administration (ICE-BMA) (who recently announced, a gradual transition to a new voluntary bid system from contributor banks on actual transactions rather than expert opinions), who would prefer its continuance, although it is unclear how such LIBOR would be determined in a continually contracting market.26 The continuance of LIBOR publication after Cessation will be a double-edged sword with some benefits as well as substantial risks. Continued existence would provide aggrieved borrowers and possibly debt market investors with a baseline from which to measure their claim for perceived damages or value loss from the transition to SOFR, or any other replacement reference rate, plus a compensating credit spread, as being neither a commercially reasonable equivalent to LIBOR nor the result of good faith and fair dealing. Such continuance, however, raises the specter of an even more draconian claim that because LIBOR is still published, it should continue to be the fixed rate for the balance of the contract's term.27

Despite LIBOR being officially terminated at Cessation, consumer or commercial LIBOR Parties could argue that the last LIBOR rate published before Cessation should be the static fixed rate for the balance of the term of their cash product, in effect becoming a "zombie" rate.28 In fact, some contracts in the market have recently adopted the final published LIBOR as being "Static LIBOR", the fixed rate for the balance of the term after Cessation. Stranger claims have been made successfully, especially against financial institutions perceived as "manipulating" a consumer's interest rate on their debt.

CONCLUSION

Although SOFR has been identified by ARRC as the proposed reference rate to replace LIBOR,29 there remain several significant recognized obstacles to the Transition that must be successfully overcome before SOFR will be accepted as the replacement benchmark for LIBOR across the vast array of affected product types.30 ARRC, together with its working groups and market participants,31 must address (among a myriad of other issues): creating a forward looking credit risk-embedded benchmark based upon SOFR, (as the backward-looking secured replacement rate does not have an existing counterparty credit-risk premium or a cost of funds component); developing uniform fallback rate triggers and flexible timing for the Transition from LIBOR to SOFR; the weaker fallback provisions in legacy contracts for periods when LIBOR is unavailable and the better fallback provisions for Cessation that should be built into new contracts; the anticipated economic consequences of the value shift during the Transition; implementation of operational infrastructure for the calculation, determination, transition and maintenance of SOFR; tax and accounting issues occasioned by transition to a new rate; adoption of institutional governance and controls for risk management during the Transition; the limitations of existing regulatory regimes; and the liquidity of derivatives markets for SOFR-referenced products in order to develop the necessary term structures for the new benchmark.32

In addition, LIBOR Parties must also be prepared for: the increasing volatility of LIBOR as its trading volume further recedes as SOFR’s liquidity improves; the possible volatility of SOFR which unlike LIBOR will not be tempered by panel banks' appraisal bias;33 and the inevitable contentious discussions among LIBOR Parties over value transfers in the Transition.

The inability of participants in global financial markets to deal effectively with the foregoing challenges, their possible failure to resolve the deficiencies of SOFR or to develop sustainable liquidity for SOFR in the derivatives markets and thus failing to arrive at the ultimate goal of substituting new alternative reference rates as sustainable benchmark rates acceptable to the origination, securitization and derivatives markets could be virulently disruptive throughout the world financial system given the immense presence of LIBOR in every aspect of financial products. With all of that in mind, it is clear that Cessation of LIBOR is much more complicated and potentially more contentious than any Y2K-like event. As "an event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict,"34 Cessation may be more akin to a black swan.

At a recent Bank for England Market Forum in London, the NY Fed President recently warned of:

the great uncertainty over LIBOR’s future and the risks to financial stability that would likely accompany a disorderly transition to alternative reference rates….[W]e need aggressive action to move to a more durable and resilient benchmark regime.35

Whether his acknowledgement of the financial regulators' important role in working with market participants in the Transition might signal a possible official involvement to assure an orderly Transition is unclear.36

Notwithstanding that we know about Cessation's scheduled hard stop and have identified in great detail the steps that must be successfully accomplished, as well as in what sequence to accomplish, the Transition without significant market disruption, it is nearly impossible to know or anticipate any and all of the unintended consequences of any deviation, complication or delay in, or outright resistance to, the implementation and acceptance of the Transition Plan.

Whatever we call the uncertainty over LIBOR, the Transition could "have truly catastrophic and unpredictable effects"37 on the global financial markets as well as on LIBOR Parties. Given the potential systemic risks involved, market participants, regardless of their size or the size of their portfolios or the magnitude of their LIBOR exposure, should educate themselves on the Transition, understand the details of their LIBOR cash and derivative portfolio, as well as their economic, operational and legal risks before Cessation to assure themselves as much as possible of an orderly transition of their portfolios to the new replacement benchmark.

2018 © JPForte


ENDNOTES:


1 LIBOR is the rate that contributor banks in London offer each other for inter-bank deposits (i.e. funds loaned to them).

2 After an investigation in 2012 of an industry-wide scandal involving the manipulation or "fixing" of LIBOR by a few contributor panel banks, the UK Financial Control Authority assumed oversight over LIBOR in 2013 and in 2014 appointed the Intercontinental Exchange Benchmark Administration in London to be the new administrator of LIBOR.

3 The seven maturities are 1-day, 7-day, 1-month, 2-month, 3-month, 6-month and 1-year tenors.

4 3-month LIBOR, the most heavily referenced LIBOR tenor, has shrunk to a median trading volume of less than $1 Billion daily and less than $100 Million on some days; while 1-month LIBOR the most frequently used tenor for commercial mortgage loans is not more actively traded. Remarks to ARRC on November 4, 2017, Jerome H. Powell, future Federal Reserve Chair, reported in Morningstar, CMBS Research, April 2018 ("Powell Remarks").

5 The British Bankers Association oversaw LIBOR until the 2012 "rigging" scandal when it was forced to give up its responsibility for setting the rate.

6 Bailey, A. (2017, July 27). The Future of LIBOR. Speech presented at Bloomberg London, London UK. http://www.fca.org.uk/news/speeches/the-future-of-libor       

7 With the support of the US Treasury, Commodity Futures Trading Commission and the federal Office of Financial Research.

8 International Organization of Securities Commissions ("IOSCO"), "Principles for Financial Benchmarks", July 2013.

9 The Alternative Reference Rates Committee, Second Report, p.4, March 2018 ("Second Report").

10 Second Report p. 5.

11 Second Report p. 6. SOFR's current daily trading transaction volume is nearly $800 Billion.

12 The Paced Transition Plan, Second Report, Table 3 p. 17.

13 NY Fed, "Statement Introducing the Treasury Repo Reference Rates," Operating Policy, April 3, 2018.

14 Second Report p. 4.

15 Powell Remarks.

16 AFME, ICMA, SIFMA and SIFM AMG, IBOR Global Benchmark Survey/ 2018 Transition Roadmap, February 1, 2018. ("Roadmap").

17 https://www.risk.net/derivatives/5693481/buy-side-frets-over-fallbacks-in-zombie-libor-scenario

18 BlackRock, Client Newsletter, April 2018, as quoted by Glen Fest, "What's lost in transition from Libor to new benchmark?", Asset Securitization Report, May 14, 2018.

19 CME Group, "SOFR Sets Record Pace for Short-Term Interest Rate (STIR) Futures Launch," Rates Recap, June 2018, reported that: "Over 60 participants have traded 36.4K contracts; ADV has accelerated to nearly 3K over the past 7 days; Open interest has grown to 11K contracts; IR term structure with tight quotes out to 2020; Bid/Ask spreads consistently 0.15 basis points wide (minimum tick); Over 12 market makers providing liquidity; and Access historical fixings and basis spread analytics." In addition, the European Investment Bank recently issued $1Billion Sterling Overnight Index Average bonds. "EIB paves way for alternative to scandal-hit Libor benchmark by selling £1bn of debt," Financial Times, June 24-25, 2018.

20 PGIM, pp 5-8.

21 That would alleviate any operational problems for the systems of some major market participants that can only generate two (2) factor interest rates.

22 Generally, a modification to the interest rate that is the greater of (A) one-quarter of one percent (1/4% or 0.25%) or (B) 5 percent of the annual yield, is considered a significant modification and triggers "sale or exchange" treatment. In effect, the "old" note is deemed to be exchanged for the "new" note, and there may (or may not) be gain or loss recognized on the transaction, but it depends on the specific facts and circumstances of each note and on the related "applicable federal rate" in effect at the time of the modification transaction. 26 CFR 1.1001-3. 

23 26 CFR 1.1001-3(c) (1) (ii).

24 Whether the fallback must be specific to SOFR or may be simply to a new substitute benchmark generally accepted in the financial markets as a replacement for Libor is unclear and needs to be clarified by the IRS.

25 The Alternative Reference Rates Committee "Antitrust Guidelines for the Members of the Alternative Reference Rates Committee and Associated Working Group."

26 Claiming that there is an overwhelming preference in the market to continue Libor, ICE has been urging investors, borrowers and lenders to pressure the panel banks to continue contributing voluntary bids.  

27 Moody's Investors Service, "Uncertainty over future of Libor is broadly credit negative," Sector In-Depth, p. 1 May 14, 2018.  

28 PGIM Fixed Income, "LIBOR's Borrowed Time?" PERSPECTIVES, p. 6, April 2018 ("PGIM").

29 There is no legal or other requirement for market participants to adapt SOFR on cash products or derivatives, only the pressure of a growing liquid SOFR market and a shrinking less liquid (and possibly more volatile) LIBOR market.

30 Roadmap p. 7.

31 Roadmap p. 7.

32 Roadmap p. 10.

33 PGIM p. 5.

34 Taleb, THE BLACK SWAN: THE IMPACT OF THE HIGHLY IMPROBABLE. (2007)

35 https://www.findknowdo.com/news/05/24/2018/ny-fed-president-calls-aggressive-action-libor-transition ("Dudley Remarks").

36 Dudley Remarks.

37 Nassian Nicholas Taleb at the CFA Institute 2008 (http://lexicon.ft.com/Term?term=black-swan).

An earlier version of this Client Advisory appeared as a shorter article by the author in 20 CRE Finance World 2 (Summer 2018), p. 13.