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I. What’s the issue?
The London Interbank Offered Rate (“LIBOR”) is the most widely used interest rate benchmark in the world, referenced in some $373 trillion notional value of financial transactions of all types. But in light of the various price-fixing scandals surrounding LIBOR and the limited activity in the London interbank market, the U.K. Financial Conduct Authority (“FCA”) announced in 2017 that it will no longer sustain the publication of LIBOR as a reference rate by the end of 2021. LIBOR’s administrator now plans to retire 3-, 6-, and 12-month U.S. dollar LIBOR in late June 2023, while leaving in place the end-of-2021 retirement date for 1-week and 2-month U.S. dollar LIBOR and for all LIBOR settings in British pounds, euros, Swiss francs, and yen. U.S. regulators have encouraged banks to transition away from LIBOR “as soon as practicable.”
Tuesday, May 4, 2021
This is a supplement to our prior articles regarding the phasing out of LIBOR (see “LIBOR Is Fading Away” and “LIBOR Is Fading Away; But, Perhaps, Not as Quickly as Thought“). For decades, lenders have extended credit facilities, both large and small, using LIBOR-based interest rates and documents relating to these facilities. “LIBOR” (the acronym for the London Interbank Offered Rate) has served as a premier benchmark for short-term (overnight to one year) interest rates around the world.
LIBOR Fading Away
On March 5, 2021, the UK Financial Conduct Authority (FCA) announced the timing for the cessation of all 35 LIBOR settings at once. In particular, one-week and two-month U.S. dollar LIBOR settings will permanently cease immediately after December 31, 2021. Publication of the overnight, one-month, three-month, and 12-month U.S. dollar LIBOR settings will permanently cease immediately after June 30, 2023.
On April 6, 2021, New York Governor Andrew Cuomo signed into law
Senate Bill S297B/Assembly Bill 164B (the “New York Legislation”), which paves the way for a smoother transition from US Dollar LIBOR and, in particular, addresses certain “tough legacy contracts”
1 where replacement of LIBOR is not feasible due to certain legal or logistical issues. The New York Legislation is the first federal or state bill in this country signed into law that directly addresses the upcoming cessation of LIBOR.
Background
The ICE Benchmark Administration (“IBA”), the administrator of LIBOR,
released a feedback statement on March 5, 2021, explaining that the IBA would cease publication of LIBOR (i) after December 31, 2021, for one week and two month USD LIBOR, and (ii) after June 30, 2023, for all other USD LIBOR tenors (overnight, one month, three month, six month and twelve month).