Daily Management Review

Doubts in Libor rate changes setting off alarming trend: Franklin Templeton


11/09/2017


While regulators plan on changing the scandal-plagued Libor by the end of 2021, given its strategic nature and the fact that it is deeply embedded into global finance, measures taken by lenders are bordering on the verge of legality, warned two asset managers from Franklin Templeton.



Franklin Templeton, one of the world’s largest asset managers, has warned that the uncertainty surrounding the future of the Libor global interest rate benchmark is making debt sellers nervous; as a result they are making “alarming” changes to their financial contracts.
 
Although regulators plan on replacing the Libor by the end of 2021, but since it is used as a reference and is thus embedded into assets worth tens of trillions of dollars, the process naturally is far from easy.
 
Sceptics have raised doubts as to whether such a significant change can be made on time, and have even scoffed at the possibility of such a task terming it as being too ambitious.
 
In a blog post, two top debt manager of Franklin Templeton have warned that serious problems have already started to emerge.
 
As per Reema Agarwal and Mark Boyadjian, from Franklin Templeton’s ‘Floating Rate Debt Group’, many companies were adding language to their new kiab credit arrangements that allow them to choose a replacement rate for Libor, without lenders’ consent.
 
Significantly, what is even more worrisome is that in some cases, the new language was not made available in the draft documents that were sent to investors but were inserted in the final executed versions of the credit agreements, said the duo.
“The legality and underhandedness of inserting such a provision are debatable,” wrote Agarwal and Boyadjian.
 
This makes the possibility of a change in the terms of the financial contract very real with the buyer not being aware of the change of status in the asset that he has just purchased.
 
This is an “an alarming trend” they said. “In our opinion, it’s a cardinal rule of lending that each affected lender should consent to a proposed reduction in the interest rate of a loan.”
 
As a result, Franklin Templeton will therefore closely scrutinize the fine-print of credit agreements and will not hesitate to walk away from any potentially attractive deals if its terms weren’t transparent, said the duo.
 
Franklin Templeton has around US$750 billion worth of assets under its management.
 
 
 
 
References:
https://www.reuters.com







Science & Technology

Apple to present Netflix competitor at the end of March

Live Human Under-Skin Chip Implantation Takes Place At Barcelona

IDC: Wearable tech gadgets market is booming

Second Patient In 12 Years Becomes HIV Free By Bone Marrow Transplantation

Car-Sharing Platforms Could hold The Key To 5G & Auto Industry Collaboration

Bezos tells about his space plans

Fast Company: Apple isn't the most innovative anymore

U.S. Space Program Could Be Delayed Due To SpaceX, Boeing Design Risks: Reuters

What trends will be affecting the health sector in the coming years?

Deloitte identifies main cyber threats for power industry

World Politics

World & Politics

Largest companies reveal volumes of plastic produced by them

US Warning To Germany About Intelligence Sharing Over Huawei Ban

Mercer reveals the world’s safest cities

No vaccinations, no school: Italy’s new law

Why the new Aachen Treaty cannot save France-Germany relation

The Netherlands and France are arguing over Air France-KLM

Study: 6 of the 10 healthiest nations of the planet live in Europe

Countries On Huawei Technology Systems Won’t Be On U.S. Partner List