US($) interest rate and cross currency swaps after the LIBOR funeral: A corporate treasury primer

This paper examines the transition from LIBOR to SOFR in the US and maps out the consequences for European corporate treasurers by showing how the application of SOFR in cash products and derivatives differs from LIBOR. As interest rate and cross-currency swaps transition to compounded SOFR, corporates may face a trade-off between the higher costs of using Term SOFR versus facing operational difficulties with their internal treasury systems when using compounded SOFR in arrears. With respect to European corporates, challenges arising from the new in arrears conventions should be less pronounced since EURIBOR coexists next to €STR, which means that corporates may continue to use term rates set in advance when they choose to swap U.S. dollar exposure into euros.