With corporates and their advisors now beginning to panic over how to ensure a smooth transition from LIBOR, the Bank of England has decided to provide a helping hand by way of a little advice.  The advice is this: consent solicitation (i.e. approval from Bondholders at an EGM) is the best way to transition legacy bond contracts.

The advice comes directly from the Bank of England Risk Free Reference Rates Working Group in a recently published key statement, detailing the current progress of transitioning legacy LIBOR bonds by way of consent solicitation. It is encouraging all market participants to transition across as many as possible, as soon as possible via this method.

The truth is, there aren’t many other options for issuers.  In some cases, issuers may be able to make a tender offer to purchase their LIBOR bonds, or exchange them for a new version of the bond—but even this is best done alongside proactive engagement with Bondholders, and agreement via an EGM.

The Bank of England’s RFR Working Group statement is summarised below. Read the full document here.

• 8 consent solicitations so far:  Total of 8 successful consent solicitations for English law legacy bond contracts from LIBOR to SONIA

• Transition across as many as possible: “Bank of England RFR Working Group encourages all market participants to engage in the task of transitioning as many legacy bond contracts as possible. Undertaking consent solicitations will help reduce market participants’ exposure to LIBOR risks”

• No mandatory terms of transition set out: “Unless already provided for in the legacy bond contract, there are no mandatory terms of transition and parties may therefore agree on an appropriate arrangement”

• Consent solicitation seen as the way forward:  “To encourage and support market participants in transitioning more English law legacy bond contracts from LIBOR to SONIA by way of consent solicitation, the RFR WG is publishing considerations for the sterling bond market based on the experience of the RFR WG members in undertaking consent solicitations so far”

• Engage with all relevant parties, and soon: ‘In order to ensure an efficient and methodical consent solicitation process, and to give investors sufficient time in which to analyse thoroughly the proposed amendments to the conditions of the bonds, all parties to the consent solicitation (including custodians, agents and trustees, if relevant) should have regard to the timing deadlines specified in the relevant bond documentation and ensure the timely sequencing of the steps required to give effect to the consent solicitation, including, but not limited to, delivery of notices and consent solicitation documentation to investors.’

Consent Solicitation: The Optimal Way Forward

Given the complexity of transitioning to a new reference rate, the consent solicitation part of the process may not be initiated early enough given the focus on other elements of the transition.  But ultimately, there is no transition unless Bondholders agree.

The good news is the entire process of consent solicitation and bondholder engagement can be outsourced to a firm that specialises in exactly this endeavour.  CMi2i, for example, has been identifying the most difficult-to-find bondholders, engaging them, mobilising them and ultimately attaining their approval at EGMs long before the LIBOR transition was announced.  And unlike other providers that just broadly identify and notify (often the wrong) bondholders, CMi2i takes the time to find the true beneficial owner, engage them in a dialogue, ascertain whether the issuer has their support, and mobilise them to actually vote. CMi2i’s track record for accurate Bondholder identification and successful EGM’s is unsurpassed by any other firm.

The bottom line is this: Issuers are going to need to pursue consent solicitation quickly to transition from LIBOR in the most risk-free way possible.  There are however experienced capital markets intelligence firms available that can manage that process and make it as painless as possible.

Or at least one.

And we happen to know where you can reach them.

About CMi2i

CMi2i is a leader in capital markets intelligence, specialising in the world’s most accurate Equity & Debtholder identification service. CMi2i supports issuers and their advisors with investor relations, M&A, shareholder activism, capital restructuring and reputation management goals. The company has supported more than 1000 corporate transactions, and has over 500 clients worldwide.