ZARONIA Transition: Understanding the Fixed Credit Adjustment Spread

The Market Practitioners Group has published its formal recommendation that the JIBAR fallback rate will comprise a compounded South African Rand Overnight Index Average (“ZARONIA”) rate and, where applicable, a spread to account for the structural differences between the forward looking JIBAR and the overnight ZARONIA rates.

The CAS is intended to bridge the economic difference between the two benchmarks when an existing JIBAR-linked transaction transitions to ZARONIA. It was determined by reference to the historical median of the differences between JIBAR and compounded ZARONIA over a five-year lookback period and fixed on the JIBAR cessation trigger date,  3 December 2025.

Bloomberg Index Services Limited (“Bloomberg”) subsequently published the fixed CAS applicable to each JIBAR tenor. These fixed amounts are set out in Bloomberg’s Technical Note on IBOR Fallbacks (ZAR JIBAR Cessation), available through Bloomberg’s transition resources, as follows:

The CAS is intended to minimise any unintended transfer of economic value between the contracting parties (whether in the form of a benefit or prejudice) arising solely from the transition between the two benchmarks. This is particularly relevant because JIBAR is a forward-looking term rate incorporating bank credit and liquidity considerations, whereas ZARONIA is an overnight near risk-free rate. The CAS is therefore relevant only to the transition of existing JIBAR-linked exposures and not required for facilities priced by reference to ZARONIA from the outset.

As parties implement the transition, the CAS should be considered alongside the relevant ZARONIA methodology, margin and any existing interest rate floor. These considerations will be critical to ensuring that the transition does not inadvertently alter the economics of the underlying transaction.