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Wall Street takes fresh steps to kick $200 trillion Libor debt habit

By Joy Wiltermuth

Banks, borrowers urged to stop using Libor to write debt contracts

There's no easy way to kick a roughly $200 trillion debt habit, but Wall Street has taken more steps in the right direction.

Energy company Enbridge Inc. (ENB.T) this week borrowed $500 million in the U.S. corporate bond market using the Secured Overnight Financing Rate (link) (SOFR) benchmark, an alternative to the scandal-plagued Libor reference rate.

The financing marks the first of its kind in the U.S., outside of the banking, housing and auto-finance sectors, which have dominated the roughly $437 billion of SOFR-linked borrowing since the start of 2020, according to Goldman Sachs.

U.S. housing finance giants Fannie Mae (FNMA), Freddie Mac (FMCC), as well as JPMorgan Chase & Co (JPM), have been top issuers to rely on the new benchmark. The Goldman chart below tracks the increase in SOFR-linked debt issuance in the past few years, with the finance sector leading the way.

Enbridge operates in the U.S. and Canada with a main focus on oil pipelines, natural gas transmission and midstream and gas distribution and storage.

"We have always been a leader in innovative financing strategies and early on we recognized the importance of incorporating SOFR for our own plans and for the market," Enbridge said in a statement to MarketWatch.

The funding comes as U.S. regulators ramp up efforts to get banks and borrowers to stop dragging their feet on using SOFT instead of Libor which is set to be discontinued on Jan. 1, 2022. Benchmarks like SOFR help to determine interest rates on mortgages, corporate loans and other types of debt financing.

Goldman analysts said the "multiyear, globally coordinated effort to transition away from Libor has produce multiple notable milestones over the past several months," including with the new energy deal's potential to pave the way for increased corporate borrowing based on the SOFR benchmark, in a Thursday note.

In November, three U.S. bank regulatory agencies (link) called on banks to stop writing contracts referencing U.S. Libor by the end of 2021. Overseas regulators set June 2023 as the end date for U.S. dollar Libor reference rates.

In other Libor developments, former UBS Group (UBS) and Citigroup (C) trader Tom Hayes was released from prison in late January (link), after serving more than five years of an 11-year sentence for rigging the Libor benchmark.

Hayes told sister publication Financial News in February (link)that his conviction and prison term have given rise to health concerns, while also embarking in an effort to get the conviction quashed.

Related: Lenders aren't moving fast enough to replace Libor, warns global banking monitor (link)

-Joy Wiltermuth; 415-439-6400;


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02-19-21 1455ET

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