Today, the Canadian Alternative Reference Rate working group (CARR) published a set of documents that will help support the transition of the Canadian loan market from the Canadian Dollar Offered Rate (CDOR) to the Canadian Overnight Repo Rate Average (CORRA). CARR is also introducing, as part of its two-staged transition, a “no new CDOR or BA loan” milestone date of November 1, 2023 to facilitate a tapered transition for the loan market by reducing the stock of loans that need to be remediated ahead of CDOR’s cessation after June 28, 2024.
The end of CDOR will have major implications for the Canadian dollar loan market. After the cessation of CDOR, loan facilities that reference CDOR or a bankers’ acceptance (BA) rate will be replaced by facilities that reference risk-free rates (overnight or term versions of CORRA) or a bank’s prime rate. No longer using CDOR or BA rates as a benchmark for loans will mean that BA securities (that were produced when a borrower drew down on their facility) will no longer be issued. These changes will make Canadian lending practices more-closely aligned with international practices, including those adopted in the LIBOR transition.
The first document provides a set of recommended best practices for the loan market to help industry participants prepare for and then transition their loans to overnight CORRA compounded-in-arrears or Term CORRA. The second document provides a set of recommended definitions and provisions for loan agreements linked to overnight CORRA compounded-in-arrears or Term CORRA. CARR has also provided a table comparing its recommended conventions for loans referencing overnight CORRA compounded-in-arrears and Term CORRA.
“No new CDOR or BA loan” milestone – effective November 1, 2023
CARR’s “no new CDOR or BA loan” milestone establishes a date after which all new loan contracts must reference only CORRA, Term CORRA, or prime. For the purpose of this new milestone, new contracts include any agreements that creates additional CDOR or BA exposure as well as material amendments, changes in pricing, term extensions requiring lender consent, and facility amount increases to existing loan agreements. For clarity, this milestone does not impact the ability to draw on existing CDOR or BA loan facilities that have not yet matured, or that have been extended or been subject to material amendments prior to November 1.
After November 1, 2023, lenders will still be expected to comply with contractual obligations in existing credit agreements referencing CDOR or BAs and to meet contractual requirements of these agreements including but not limited to drawdowns, extensions (i.e. Borrowers’ exercising a pre-existing term extension option that does not require additional lender consent) or pre-documented increases (e.g., construction facilities that become available after meeting any preconditions). Permitted activities include:
- Rollover of existing BA draws, interest term renewals or new draws under an existing loan (term or revolver);
- Draws on committed and uncommitted facilities entered into prior to the No “New” CDOR or BA exposures date;
- New loan agreements and extensions of existing loan agreements that were underwritten or committed to prior to the No "New” CDOR or BA exposures date but that close after November 1;
- Accordion activation or usage in the normal course of business, not paired with extension of term; and
- Purchase of existing CDOR loans in the secondary market.
If industry participants have questions about either CARR’s recommended conventions or the “no new CDOR or BA loan” milestone please consult with your lending financial institution or reach out to CARR .
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