Earlier this month, D&S attorney Patrick Guida was part of the faculty presenting on “The LIBOR Endgame: Preparing for the 2021 Transition (and Beyond?)” for the American Law Institute Continuing Legal Education.
LIBOR, the London Interbank Offered Rate, is a benchmark interest rate at which major global banks lend to one another in the short-term international interbank market. It is also the basis for commercial loans and consumer loans in the US and in countries around the world.
But with LIBOR based on a dwindling number of interbank transactions, USD LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR) in the US for derivatives and likely for syndicated and bilateral loans as well. Other countries, including Great Britain, have other replacement rates already identified (e.g. Sterling Overnight Interbank Average Rate or “SONIA” for Great Britain).
Two recent announcements clearly outline LIBOR’s endgame. Bank regulators released supervisory guidance in November 2020 stating that they expect banks to cease originating LIBOR-referenced credit facilities after 2021. In addition, on March 5 the Intercontinental Exchange (ICE) Benchmark Administration closed its consultation period on its intention to permanently cease publication of non-USD LIBOR and 1-week and 2-month USD LIBOR at the end of 2021, but will continue to publish the remaining tenors of USD LIBOR until the end of June 2023. This means that such remaining tenors of USD LIBOR, including the 1 month, 3 month, 6 month and 1 year, will only be available for those existing “legacy” contracts until June 2023, by which date all must transition to non-LIBOR based indices.
LIBOR alternative rate provisions or “Fallback Language” recommended by the US Alternative Reference Rate Committee (ARRC) was also discussed and examples provided.
With clear deadlines in place, the panel helped attendees prepare for non-LIBOR loan originations and remediation of existing loans.
Reach out to Patrick Guida to learn how the LIBOR Endgame impacts your loan or institution. Purchase the on-demand webinar or coursebook here.