The Voyage to SOFR: TMS Headwinds for Some, Tailwinds for Others

# Technology

# Treasury Management System (TMS)

Corporates weigh vendor readiness, the time and expense of updates and devise workarounds amid Libor transition.

Corporate treasurers trying to prepare for the transition from Libor to new indices like SOFR and other alternative interest rates are assessing the readiness of their TMS vendors. Many need to decide whether to spend the time and money necessary to upgrade systems or rely on third parties or devise their own solutions instead.

While a proposed extension for legacy Libor contracts may provide some relief, members at recent NeuGroup meetings have voiced concern about TMS vendor readiness and the cost of upgrades.

At the same time, some users of Reval’s cloud-based solution expressed confidence that Reval is prepared, and they anticipate a relatively simple, automated roll-out of an update for SOFR.

Relying on Excel and banks. Members not in a position to upgrade or migrate to a new system may turn to making necessary calculations by hand, although some treasurers say this strategy is not sustainable.

One treasurer said his company would have to pay to upgrade its TMS to have SOFR functionality, “which we’re not going to do for lack of resources. So it’ll just be up to manual calculations at that point, leaning on the banks for some help with the SOFR calculations.”

Another who uses the same system outsources the calculations to Chatham Financial rather than pay to upgrade. “We feel comfortable about [Chatham’s] capabilities—we just outsource all that.”

Another TMS requires clients to undergo a multiyear migration to a new version of its system to handle SOFR. A member in the midst of this process said she has concerns about the project’s timeline and Libor’s end date.

Until the upgrade process is complete, the member said her treasury team will need to pull SOFR into Excel from Bloomberg and calculate the compound interest on a daily basis.

For smaller companies, this may be a feasible long-term solution, but not for larger companies like hers. “There’s a risk introduced by the number of contacts and transactions we have within the system,” she said.

Waiting game. A member whose company is opting to pay to upgrade said implementation will take 10 months, with the TMS unlikely to include SOFR index functionality until Q2 or Q3 of next year.

“I am a little bit concerned with where our vendor is with even providing that basic functionality that we need in the upgrade,” she said. “We’re already behind schedule, and we haven’t even kicked off the project.”

A good experience. Some members using Reval expressed fewer concerns, saying the “user-friendly” vendor is well-positioned for the transition.

Automated updates make using Reval simple for one member who said he appreciates the rollout process. “In each of their user releases, they’ve highlighted the changes and provided user guides, even on Libor exposure reporting,” he said. “It shows you a dashboard where you can see where all your exposure is, to help people along the journey.

“You have the ability to pick a date you want to transition to the new base rates, the base rates are already reporting in there if you want to see what that means for interest going forward, forecasting-wise.”

Reval’s pricing evaluator came in handy for another member’s team, which uses it to “evaluate our debt differently, based on alternative reference rates or Libor. Overall, it’s been a good experience.”