Change from CDOR to CORRA rate
On May 16, 2022, Refinitiv Benchmark Services (UK) Limited (RBSL), the administrator of the Canadian Dollar Offered Rate (CDOR), announced that it would cease the calculation and publication of all tenors of CDOR effective June 28, 2024.
RBSL's announcement follows the analysis and subsequent recommendations of the Canadian Alternative Reference Rate Working Group (CARR). Specifically, on December 16, 2021, CARR published a white paper summarizing its findings and conclusions, in which it recommended that RBSL cease the calculation and publication of CDOR.
CARR made these recommendations against the backdrop of the global reform of interbank offered rates (IBORs). CDOR will be replaced by the Canadian Overnight Repo Rate Average (CORRA), which is set daily. Because CORRA is based on actual stock market transactions, it's a more robust1 and transparent benchmark.
Please note that this notice doesn't constitute a change in the rates negotiated for the current agreement as of the date of this notice. Any rate changes will instead be announced in a future communication from a Desjardins advisor.
Please be advised that after June 28, 2024, CDOR will no longer exist. This means that it will no longer be possible to choose CDOR (or any other rate or instrument referencing CDOR) as the lending rate.
The transition from CDOR to CORRA will take place in 4 stages:
1. Since June 30, 2023: With a few exceptions (such as banker's acceptances (BAs) / Desjardins acceptances), all new derivative contracts and securities must be priced using the CORRA compounded-in-arrears rate.
2. Beginning on September 5, 2023: Term CORRA, available for terms of 1 month or 3 months, will be published for commercial financing. Like CDOR, Term CORRA is a forward-looking rate. However, unlike CDOR, overnight CORRA and Term CORRA don't include a bank credit risk premium, meaning that they're not economically equivalent to CDOR. As a workaround, a credit spread adjustment will be applied to the CORRA and Term CORRA lending rates.
3. Beginning on November 1, 2023: No new contracts that reference CDOR or BAs / Desjardins acceptances can be issued. This means that all new credit facilities must reference overnight CORRA, Term CORRA or any benchmark rate other than CDOR.
For clarity, a contract that fits any of the following descriptions is considered to be a new contract:
- Any contract that increases exposure to CDOR or to BAs / Desjardins acceptances
- Any contract that introduces material amendments, changes in pricing, term extensions or facility amount increases to existing credit facilities
- Any new loan or financing contract
- Any new credit agreement
Loan facilities that reference CDOR or BAs / Desjardins acceptances and that were entered into before November 1, 2023, can still be drawn down until the final publication of CDOR on June 28, 2024. However, the agreements for these loan facilities must be amended (on annual renewal or at another scheduled or given time) at the latest by June 28, 2024.
4. Beginning on June 28, 2024: The fallback language will apply to all existing contracts that use CDOR or any other benchmarks that reference it. These contracts will accordingly need to be converted to CORRA or another authorized benchmark rate by June 28, 2024.
Loans that reference CDOR can be renewed without the changes mentioned above until the final publication of CDOR on June 28, 2024, to the extent permitted by the terms of the existing agreement.
CDOR is the interest rate benchmark for a large number of financial instruments in the Canadian financial system2, including derivatives, loans and securitized products.
Published daily, CDOR is a forward-looking rate that includes a risk premium. It's the reference rate at which financial institutions are able to lend to commercial borrowers. It's also the underlying rate for BAs and Desjardins acceptances.
As previously mentioned, CORRA is much more robust1 than CDOR. CORRA is calculated based on more than $15 billion in overnight repurchase transactions, which makes it robust1, transparent and capable of representing market funding activities.
Here's a table comparing CDOR and CORRA.
CORRA (overnight funding rate)
Includes both a term premium and a risk premium
Doesn't include a risk premium
Daily rate compounded in arrears
According to CARR, “The determination of that rate…is based predominantly on expert Judgement”3
Based on actual stock market transactions
Administered by RBSL
Administered by the Bank of Canada
** Term rate available as of September 5, 2023
To minimize the rate conversion risk between lenders and borrowers and to maintain economic equivalence, a credit spread adjustment will be applied to the CORRA and Term CORRA lending rates.
Given that CORRA compounded-in-arrears is a backward-looking overnight lending rate, it needs to be compounded daily. This means that the effective rate applicable to the loan is only known at the end of the interest period.
A forward-looking CORRA term rate will also be created on September 5, 2023, allowing borrowers to predict the cash flow and the interest payable on their loans from the start of the loan, the same way as with CDOR.
Term CORRA will be available to be used for financing and hedging purposes. This means that anyone who wishes to carry out hedging transactions will have the option of doing so using Term CORRA or overnight CORRA compounded-in-arrears. However, CARR recommends using CORRA compounded-in-arrears for hedging transactions whenever possible. The CORRA compounded-in-arrears derivatives market is expected to be more active and liquid than the Term CORRA market.
From now until the final publication of CDOR on June 28, 2024, loans for which a BA or Desjardins acceptance is used to calculate interest, including discount loans, will be reviewed or replaced with other financing options. Because they are priced using CDOR, BAs and Desjardins acceptances will no longer be offered.
We encourage you to speak with a professional for legal and accounting advice on the impact of the CDOR reform on all of your agreements, financial activities and financial statements. We also recommend that you contact your Desjardins advisor for solutions that meet your needs.
Given that CDOR is being discontinued, borrowers should consider other financing options such as CORRA compounded-in-arrears, Term CORRA or any other benchmark rate, depending on their needs. At Desjardins, our advisors are eager to draw on their wide range of skills to assist you with this process.
Here are some links if you'd like more information on the subject:
1. Ref. Page 2, 2nd paragraph : https://www.bankofcanada.ca/wp-content/uploads/2023/07/best-practices-transitioning-loans-cdor-corra.pdf
2. Ref. Page 1, 2nd paragraph : https://www.bankofcanada.ca/wp-content/uploads/2021/12/CARR-Review-CDOR-Analysis-Recommendations.pdf
3. Ref. Page 1, 4th paragraph : https://www.bankofcanada.ca/wp-content/uploads/2021/12/CARR-Review-CDOR-Analysis-Recommendations.pdf