Bloomberg Seeks Market Feedback Regarding Potential Cessation of BSBY

By Justin B. Birtcher, Jenna L. Bouchard, and David A. Sprentall 

In a statement issued on September 13, 2023, Bloomberg Index Services Limited (“BISL”) announced that it is seeking feedback from lending market participants on a proposal to cease the publication of all or certain tenors of the Bloomberg Short-Term Bank Yield Index (“BSBY”). The BSBY was designed as a cost of funding benchmark for lending markets and has been published since March 2021. BSBY has served as a preferred rate replacement for USD LIBOR-based loans for prominent lending institutions and gives borrowers forward-looking term rates to use when forecasting interest accruals on loans. BSBY was dealt a blow on July 3, 2023, when the International Organization of Securities Commissions issued a warning that credit sensitive rates such as BSBY exhibited “some of the same inherent ‘inverted pyramid’ weaknesses as LIBOR.”   

While the announcement does not constitute a statement by BISL of a cessation of the benchmark BSBY that would trigger “benchmark replacement” provisions in many credit agreements, this proposal does signal that BISL is assessing the size and maturity of existing financial products referencing BSBY and whether borrowers and lenders feel they could make alternative benchmark arrangements within 12 months if BISL provided 90 days’ prior notice of cessation. Notably, the BISL questionnaire also references the possibility of restricting the use of BSBY in new financial products during the 12 months leading up to a possible cessation. 

BISL is soliciting feedback from September 13, 2023, through October 13, 2023. For a copy of the BISL consultation questionnaire, please visit this link. Completed questionnaires should be sent to indexconsult@bloomberg.net by October 13, 2023.