Leaving LIBOR: The March 5th Announcements
There are three key dates that mark the end of LIBOR as a pricing mechanism for US dollar denominated loans. The first has already occurred.
MARCH 5, 2021
ICE Benchmark Administration Limited (IBA), the authorized and regulated administrator of LIBOR, announced, and the Financial Conduct Authority, which regulates and supervises the IBA, confirmed, that all LIBOR settings will either cease to be provided by any administrator or no longer be representative after the following dates:
- December 31, 2021, in the case of 1-week and 2-month USD LIBOR settings and all non-USD LIBOR settings; and
- June 30, 2023, in the case of all remaining USD LIBOR settings.
DECEMBER 31, 2021
- All non-USD LIBOR settings will cease and all non-USD LIBOR contracts will transition to replacement rates;
- The 1-week and 2-month USD LIBOR settings will cease; and
- New contracts that use LIBOR as a reference rate will be viewed by US regulators as creating safety and soundness risks.
JUNE 30, 2023
- All remaining USD LIBOR settings will cease and all USD LIBOR contracts will transition to replacement rates.
The Alternative Reference Rates Committee (ARRC) has confirmed that in its opinion the March 5th announcements constitute a “Benchmark Transition Event” with respect to all USD LIBOR settings under the ARRC-recommended fallback language. The ARRC fallback language, under both the amendment and the hardwired approach, requires that the lender (or the administrative agent in the case of a syndicated credit facility) deliver notice of the occurrence of the Benchmark Transition Event to the other parties promptly after the occurrence of the event. The language does not require an immediate transition away from LIBOR but, in the case of syndicated credit facilities that use the amendment approach, it allows the borrower and the administrative agent to take advantage of the streamlined amendment process contemplated by the ARRC fallback language.
We strongly recommend to our banking clients that they review the fallback language in their LIBOR loan agreements and determine whether the March 5th announcements have triggered a notice requirement. Please note that any provisions that are modeled on the ARRC fallback language may trigger notice requirements if they require notification of counterparties that the administrator of the LIBOR rate has made a public statement identifying a specific date after which it will cease providing LIBOR settings or LIBOR will no longer be representative.
The Loan Syndications and Trading Association (LSTA) has published a suggested form of notice in an effort to maintain consistency in the market. Please do not hesitate to contact Michael Clain or your relationship lawyer if you would like a copy.
The LIBOR transition endgame has started.
Michael J. Clain