Today, the Canadian Alternative Reference Rate working group (CARR) published its paper on legacy securities linked to CDOR (i.e. securities referencing CDOR that mature after CDOR’s cessation). In this paper, CARR identifies and discusses the issue of Canadian “tough legacy” securities (i.e. those that mature after June 28, 2024 and have both (i) poor or no CDOR fallback language, and (ii) high consent thresholds for amending governing documentation), and provides a recommendation in respect of remediating these securities.
CARR’s analysis has found that the exposure and number of tough legacy securities is comparatively small and, given this small size, that the “legislative solutions” seen in other jurisdictions are not necessary for the Canadian market. CARR provides a recommended course of action for both issuers and investors with exposures to tough legacy securities. The recommendations apply to all securities, including floating-rate notes and NHA MBS.
CARR also recommends that all market participants that have CDOR derivative exposure that is written under ISDA documentation and matures after June 28, 2024 to sign, if applicable, the ISDA protocol.
CARR also published today a set of recommended sample term sheets for CORRA-based FRNs (both simplified and detailed versions) to facilitate the use of CORRA in securities. These sample term sheets use the CORRA Compounded Index published by the Bank of Canada to calculate the coupon payment.
Canada established CARR, a working group sponsored by the Canadian Fixed-Income Forum, to coordinate Canadian interest rate benchmark reform. CARR’s mission is to ensure Canada’s interest rate benchmark regime is robust, resilient and effective in the years ahead. Over the coming transition period, CARR will support the transition from CDOR to CORRA as the key Canadian interest-rate benchmark.
Visit CARR’s webpage for up-to-date information on the transition, including all of CARR’s key documents, and to sign-up to receive email updates from CARR.
Senior Policy Director
Financial Markets Department
Bank of Canada
Managing Director and Vice Chair
CIBC Capital Markets
Bank of Canada