Beyond Libor What will happen once Libor is gone?

The use of Libor as the reference rate for Libor loans is expected to be discontinued at the end of 2021. The National Working Group on Reference Interest Rates in Swiss Francs (NWG) has recommended the money market rate SARON (Swiss Average Rate Overnight) as the successor to the CHF Libor, making SARON the new reference rate for Libor loans in Swiss francs. Credit in the form of the Libor loan will continue to be offered in different currencies until further notice. UBS is currently working on a successor product and plans to launch the successor to the UBS Libor loan during the course of 2020.

UBS is also collaborating closely with the relevant working groups regarding a successor to Libor in other currency areas.

Existing clients with a UBS Libor loan will be notified in due course of the switch.

Key information about the replacement of Libor

SARON (Swiss Average Rate Overnight) has existed since 2009 and is calculated based on completed transactions and binding quotes (buy-and-sell prices) posted on the Swiss repo market. It is administered by the SIX Group AG (SIX).

The calculation methodology was developed by SIX and the Swiss National Bank (SNB). SARON is publicly available, robust and fulfills international benchmark standards. It’s calculated and published by SIX, which maintains the infrastructure for the Swiss financial center, directly after close of trade (6:00 p.m. UTC).
Current SARON rates can be found here.

As explained above, SARON is an overnight rate used to calculate interest on money loaned from today until tomorrow.

UBS plans to use SARON to calculate interest on loans in Swiss francs. To prevent clients from having to pay interest every day, we will continue to offer one-month and three-month interest rate calculation periods. SIX offers the reference interest rate “SARON Compound” to determine the interest rate to be paid at the end of a calculation period. This rate is the average of all the SARON rates compounded daily up to the end of this period.

For a SARON loan, this means that unlike for a Libor loan, the interest rate and thus the interest payments have to be calculated on the second to last day of the interest period, and not at the start of the period.

The method for calculating the “SARON Compound” was developed by SIX in collaboration with the SNB and can be accessed on SIX’ website at any time (link) for verification calculations.

UBS plans to launch the successor product sometime in 2020.
Existing clients with a UBS Libor loan will be notified in due course of the switch.

Yes. The current discussion on replacing Libor has no impact on the products offered by UBS at the present time. Loans in the form of a UBS Libor loan can still be agreed.
New loan agreements that envisage the usage form UBS Libor loan contain a clause stating what will happen if the Libor is no longer available in the relevant currency as the reference interest rate.

The procedure for converting current UBS Libor loans will be announced in due course.

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