USD LIBOR Transition Delayed to 2023/LIBOR Transition Resources
What to Know
- It had been recommended that the US Dollar (USD) London Interbank Offered Rate (LIBOR) be replaced by the Secured Overnight Financing Rate (SOFR) as a primary benchmark index. LIBOR is used as an index to calculate interest rates in many financing agreements and most interest rate swaps.
- However, SOFR is a recommended, not required, new benchmark with banks permitted to select their own new benchmarks.
- Objective SOFR spreads are not yet available and, when available, will only be recommended, not required, with banks permitted to select their own new interest rates at their sole discretion.
- The impending transition is expected to disrupt worldwide financial markets. This is expected to pose significant challenges and risks to financial institutions and their borrower clients.
- This will impact any and all non-financial institution companies that have outstanding interest rate swaps and/or loans tied to LIBOR. It is likely that many of these companies are unaware of the proposed transition. Executing what these companies may be provided by their financial institutions, as ‘standard forms,’ will have significant financial and legal ramifications for years to come, and will likely be the subject of major litigation.
- Financial institutions now have the documentation in place to start implementation immediately. Once this documentation is in place, it will be very difficult to change or revoke absent protracted litigation/arbitration.
- While the effective date was previously set for December 31, 2021, it was recently announced that the transition period has been extended through June 2023, presumably due to both the lack of readiness and the complexity of the transition process.
- It is imperative that clients who will be impacted begin to plan and prepare now, especially since the US regulators seem intent that the transition begin immediately.
- As a result of this immediate implementation, all need to prepare including, but not limited to:
- Large and small banks
- Large and small companies
- Insurance companies
- Real estate entities
- Colleges and universities
- Museums and performing arts centers
- Other nonprofits and foundations
- Government issuers and government-sponsored enterprises (GSEs)
- Mutual, pension, private equity, and hedge funds
- Consumer groups
Managing and Preparing for LIBOR Transition: Practical Guide
Partner Les Jacobowitz previously spoke with The Knowledge Group (TKG), offering a practical guide for companies and executives that will be impacted. Firms of all sizes should now start preparing for the transition’s impact to effectively guard their interests and address potential risk issues. Importantly, no new LIBOR-based instruments should be entered into though that has not been industry practice. It is of paramount importance that companies and their counsel keep up with the updates and developments in order to effectively protect their businesses and prevent risk issues including, but not limited to, significant financial repercussions in the transition and inevitable litigation.
LIBOR Transition: Demystifying Trends, Developments, and Legal Issues Webinar
The concurrent LIBOR transition activities continue to be a major issue for global financial institutions and borrower clients. Recently, the Alternative Reference Rates Committee (ARRC) released (i) a consultation seeking comments intended as part of its fallback provision recommendations for cash products referencing LIBOR and (ii) an RFP for calculating the fallback spread. This, along with the other trends and developments that are anticipated to arise, continues to cloud the current legal climate. With the impending risks and pressures from regulatory agencies, financial entities and borrowers need to develop well-established preparation and compliance plans that will help them in this changing landscape.
Next LIBOR Transition Webinar
Join Les in his next presentation on February 21, 2021 with TKG entitled “‘Zombie’ LIBOR for USD Contracts: Navigating the Critical Issues” where he will address the following new developments:
- ISDA Protocol
- Bank Documentation Concerns
- Proposed Legislation
- CFTC Compliance Guidance
- Relevant Recent Litigation
- Interest Rate Swap Manipulations
- U.S. Treasuries Manipulations
- Government Subpoena Document Destruction
- Exchange Enforcement Actions
- Variable Rate Demand Obligation (VRDO)
- Foreign Developments
We invite you to discover previously published media commentary and client alerts by Les Jacobowitz concerning the LIBOR-SOFR transition below.
- LIBOR Crosses the Pond, Banking New York, October 1, 2012
- For private plaintiffs, all eyes on possible UBS deal, The National Law Journal, December 14, 2012
- Unlikely Provocateur Emerges to Challenge Libor Class Settlements, Reuters, January 10, 2018
- Where's the Damages? Proposed LIBOR Class Settlements Leave One Objector Wondering, New York Law Journal, January 12, 2018
- Buchwald Signals Defeat for Objections in LIBOR Class Suits, New York Law Journal, January 23, 2018
Arent Fox Client Alerts
- The End of LIBOR: Proposed Treasury Regulations and Unaddressed Issues, November 1, 2019
- The End of LIBOR: SOFR Volatility and LIBOR Transition Update, November 7, 2019
- The End of LIBOR: SOFR Updates, December 27, 2019
- The End of LIBOR: SOFR Updates, February 10, 2020
- The End of LIBOR: SOFR Updates, February 19, 2020
- The End of LIBOR: Further Market Liquidity Issues in Light of Market Turmoil, March 10, 2020
- The End of LIBOR: Crucial Liquidity Measures by the Federal Reserve System, March 13, 2020
- Swaps 101 and the Death of LIBOR, June 25, 2020
- Financial Services Bill Introduced Into UK Parliament, October 22, 2020
- ISDA 2020 IBOR Fallbacks Protocol, October 26, 2020
- CFTC’s First Enforcement Action Against an Exchange (NYMEX) for CEA Violations, November 10, 2020
- Municipal VRDO Class Action Survives Banks’ Request for Dismissal, December 2, 2020
Recent Swap Manipulation Cases, February 23, 2021