Total shareholder return and Tough legacy: Difference between pages

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(TSR).  
''Interest rates - reference rates - LIBOR transition.''


Total shareholder returns take account of both the dividend income and the capital gains (or losses) enjoyed (or suffered) by shareholders.  
In this context 'legacy' contracts are existing contracts (1) referencing LIBOR (2) that do not include fallback provisions that cater satisfactorily - or at all - for the continuation of the contract upon LIBOR being permanently discontinued.


Total shareholder returns are measured as the internal rate of return of all of the shareholders’ cash flows including their initial investment.
'Tough legacy' contracts are once that both (1) contain inadequate fallbacks and (2) are impossible or very difficult to amend in advance of the end 2021 deadline for the cessation of LIBOR.




This measure of the total rate of return to shareholders is based on the following five amounts:
:<span style="color:#4B0082">'''''Tough legacy contract examples'''''</span>


#The opening value of the shares
*Certain bonds (because the use of consent solicitations to transition legacy LIBOR bonds is costly, time-consuming and may require the consent of all of the bondholders).
#Dividends received by the investor
*Certain bilateral and syndicated loans (due to the diverse nature of borrowers, questions of cost and resource availability and other challenges).
#Any capital returned to the investor
*Certain derivatives (particularly where these are used to hedge an exposure which is itself considered tough legacy or forms part of a more complex structure).
#Any further capital paid in by the investor
#The closing value of the shares.


:''A practical guide to LIBOR transition - Slaughter and May - September 2020, p11''


The TSR is calculated as the Internal rate of return (IRR) of all of these five items, taking account of their timing as well as their amounts.


==See also==
*[[Bilateral]]
*[[Bond]]
*[[Bondholder]]
*[[Consent solicitation]]
*[[Derivative]]
*[[Fallback]]
*[[Hedging]]
*[[Legacy]]
*[[LIBOR]]
*[[Risk-free rates]]
*[[Syndicated loan]]


 
[[Category:Accounting,_tax_and_regulation]]
<span style="color:#4B0082">'''Example: Dividends and capital growth only'''</span>
[[Category:The_business_context]]
 
[[Category:Investment]]
Taking a simple example with only:
[[Category:Long_term_funding]]
 
[[Category:Identify_and_assess_risks]]
Opening value of each share at Time 0 = $100;
[[Category:Manage_risks]]
 
[[Category:Risk_frameworks]]
Dividend per share paid one year later at Time 1 = $4;
[[Category:Risk_reporting]]
 
[[Category:Financial_products_and_markets]]
Closing value of each share at Time 1 = $106.
 
And no other changes.
 
 
The total relevant cash flows for the investor are:
 
Time 0 outflow = $(100)
 
Time 1 total inflow = $4 + $106 = $110.
 
 
The IRR of these cash flows is 10%:  
 
$(100) + $110 x 1.10<sup>-1</sup> = $0.
 
So the Total Shareholder Return for the year under review is 10%.
 
 
== See also ==
* [[Internal rate of return]]
* [[Return on equity]]
* [[Shareholder returns]]
* [[Shareholder value]]
 
[[Category:Corporate_financial_management]]

Revision as of 15:10, 19 July 2021

Interest rates - reference rates - LIBOR transition.

In this context 'legacy' contracts are existing contracts (1) referencing LIBOR (2) that do not include fallback provisions that cater satisfactorily - or at all - for the continuation of the contract upon LIBOR being permanently discontinued.

'Tough legacy' contracts are once that both (1) contain inadequate fallbacks and (2) are impossible or very difficult to amend in advance of the end 2021 deadline for the cessation of LIBOR.


Tough legacy contract examples
  • Certain bonds (because the use of consent solicitations to transition legacy LIBOR bonds is costly, time-consuming and may require the consent of all of the bondholders).
  • Certain bilateral and syndicated loans (due to the diverse nature of borrowers, questions of cost and resource availability and other challenges).
  • Certain derivatives (particularly where these are used to hedge an exposure which is itself considered tough legacy or forms part of a more complex structure).
A practical guide to LIBOR transition - Slaughter and May - September 2020, p11


See also

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