Notice on the cessation of the CHF LIBOR benchmark

As of 31/12/2021 onwards, the CHF LIBOR benchmarks cease to apply, in compliance with Commission Implementing Regulation (EU) 2021/1847, and they are replaced by the new reference rates determined by the European Commission.
 

Implementing Regulation (EU) 2021/1847, which was adopted by the European Commission on 14/10/2021  and shall apply as of 01/01/2022 (OJ L 374, 22/10/2021, p.1), designates specific replacement rates for the CHF LIBOR, for all references to the CHF LIBOR in any agreement and in any financial instrument as defined in Directive 2014/65/EU. 
 

In particular: 

a) 1-month CHF LIBOR is replaced by 1-month SARON Compound Rate, 

b) 3-month CHF LIBOR is replaced by 3-month SARON Compound Rate, 

c) 6-month CHF LIBOR is replaced by 3-month SARON Compound Rate, 

d) 12-month CHF LIBOR is replaced by 3-month SARON Compound Rate. 
 

Due to the difference in value between the CHF LIBOR and the SARON Compound Rate, a fixed spread adjustment (Spread Adjustment) was added to achieve – to the extent possible – financial equivalence between the reference rate and the ceased rate and to minimise the economic impact. The Spread Adjustment is fixed and equals to the historical median spread between the CHF LIBOR and the respective SARON Compound Rate over the 5-year period ending on 5 March 2021. The Spread Adjustment does not relate to the contractual credit spread (client credit spread) which is added to the applicable base rate. 

The following Table illustrates the designated replacement rates, in accordance with the above Implementing Regulation:
 

The said Implementing Regulation was adopted by virtue of the power provided to the European Commission in the EU law to replace a benchmark, when its cessation could significantly disrupt the functioning of the European financial markets.  Specifically, it was adopted under the power of Article 23b of  consolidated Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 (The Benchmarks Regulation – BMR), according to which, and specifically for critical benchmarks to be ceased, the European Commission has the power to designate a replacement rate which shall statutorily replace all references to the ceased benchmark in any agreement or financial instrument, where those agreements or financial instruments contain no fallback provisions or no suitable fallback provisions to replace the benchmark to be ceased.
 

On 5 March 2021, the Financial Conduct Authority (FCA) of the United Kingdom, which operates as the Regulatory Authority for the LIBOR Administrator (ICE Benchmark Administration – IBA) announced the cessation of the CHF LIBOR benchmarks by 31 December 2021. This necessitated the replacement initiated by the European Commission through adopting Implementing Regulation (EU) 2021/1847.  The IBA had already decided to cease calculating and publishing the said benchmarks, as these were no longer representative due to the withdrawal of numerous contributors.  
 

The SARON (Swiss Average Rate Overnight) benchmark represents the overnight rate for the Swiss Franc (CHF) at the secured funding market. This benchmark is calculated (and therefore changes) on a daily basis, based on the interbank market rates for overnight repo transactions on each calculation day. The SARON Compound Rate for various tenors (1-month, 3-month etc.) is calculated on the basis of the daily SARON rates for the respective tenor (1-month, 3-month etc.). Its value for each tenor is published on the SIX Swiss Exchange Financial Information AG website, which operates as the administrator for the SARON benchmark.  
 

The SARON rates are calculated daily on the basis of the rates applying at the abovementioned interbank market, which: a) is a highly liquid market, and, therefore, the interest rates used to calculate the benchmark reflect the economic reality they are supposed to measure, and b) is regulated, which means that the market is supervised and needs to adhere to certain regulations.  The Working Group of the Swiss National Bank considers SARON to be its risk-free rate and has been monitoring it since 2019 to shape its monetary policy.
 

Note that replacing the CHF LIBOR with the SARON Compound Rate is the result of the harmonised efforts made by the EU competent authorities to address the cessation of certain systemic benchmarks for the EU. 
 

In this context, as of 01/01/2022 onwards, our Company will apply the final adjusted replacement rates, i.e. we will apply the SARON base rate at its current value, with the respective Spread Adjustment as per the Table above, plus any other charges (for loan agreements, the contractual credit spread plus the Law 128/1975 levy, all interest arising from the agreement/law, fees etc.), to all loan agreements and/or debt settlement agreements and/or financial instrument it manages either as a claim or a security that have references to the CHF LIBOR (provided they do not contain any fallback or suitable fallback provisions).
 

For example, for a performing loan with a base rate of 1-month CHF LIBOR, the final interest rate to be applied, commencing on the first interest period after 01/01/2022, will be equal to the 1-month SARON Compound Rate adjusted according to the Table above, plus the contractual spread plus the Law 128/1975 levy.  For a performing loan with a base rate of 3-month CHF LIBOR, the interest rate to be applied will be equal to the 3-month SARON Compound Rate adjusted according to the Table above, plus the contractual spread plus the Law 128/1975 levy, and so on.  
 

The borrowers under the portfolios managed by our Company, who have entered into agreements with a CHF LIBOR base rate, will also receive a personal notice on this replacement.