HO, HO, HO…. IBA Likely to Extend Certain USD LIBORs to June 30, 2023

Dear Santa,

All we want for the holidays is to know when LIBOR will end.

Signed,

Hunton LIBOR Transition Team
 

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Dear Hunton LIBOR Transition Team,

The Elves and I still cannot say for certain, but based on this week’s announcements from the ICE Benchmark Administration (IBA), UK Financial Conduct Authority, US financial regulators, and the Alternative Reference Rates Committee, it seems likely that one-week and two-month USD LIBOR will end on December 31, 2021, and all other USD LIBORs will end on June 30, 2023.  The final dates will remain unknown until IBA completes its announced consultation in 2021.  Even if certain USD LIBORs extend beyond December 31, 2021, the publication of those USD LIBORs would still need to meet continuing regulatory requirements and remain representative.  US financial institutions should stop using LIBOR as soon as practicable, but no later than December 31, 2021 and before then should include robust LIBOR fallback language. 

The Elves are pretty solid project managers, as evidenced by their yearly orchestration of world-wide gift giving while the reindeer and I eat cookies and carrots, and their advice is not to stop or slow what you are doing to remediate your LIBOR portfolios.  Use the additional 18 months wisely to make necessary economic decisions and operational changes for living in a world of SOFR (or whatever other replacement rate makes sense for you), but do not take a break from your remediation plans.  If you are able, move away from LIBOR sooner rather than later.

The end of LIBOR is still nigh.  Just a little less so. . . .

Signed,

Santa & the Elves

P.S.  The legal department Elves wrote a less festive description of the week’s announcements and provided links below.
 

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LIBOR’s administrator, the ICE Benchmark Administration (IBA), announced on November 30, 2020, plans to consult on IBA’s intention to cease publication of one-week and two-month USD dollar LIBOR immediately after the LIBOR publication on December 31, 2021, and the remaining USD LIBOR tenors immediately after publication on June 30, 2023.¹  The extension to June 30, 2023 for the overnight and one-, three-, six- and 12-month USD LIBOR tenors is good news for parties to tough legacy contracts, many more of which will now mature before the cessation of USD LIBOR.

In a series of coordinated announcements, United States and United Kingdom regulators lauded the IBA announcement for both providing clarity on the end of USD LIBOR and for allowing time for legacy contracts—transactions executed before January 1, 2022—to mature before the end of USD LIBOR.²  The IBA and various regulators were careful to note that their respective announcements did not constitute an announcement that the LIBOR benchmark has ceased, or will cease, permanently or indefinitely or that it is not, or no longer will be, representative for the purposes of language adopted by the International Swaps and Derivatives Association (“ISDA”).³  This careful wording ensures that this week’s announcements would not constitute a transition event under ISDA protocols, ARRC fallback language, or other similar trigger provisions.⁴ 

The Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation, in their Statement on LIBOR Transition ⁵, encouraged banks to “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021,” to better effectuate a smooth transition away from LIBOR.  Regulators further encouraged market participants party to legacy LIBOR contracts to continue work to convert such contracts or else adopt robust fallback provisions.⁶ 

On December 4, 2020, the Alternative Reference Rate Committee (“ARRC”) released a guide about the above referenced announcements by the IBA and U.S. and UK regulators. The guide provides a valuable walk-through of these announcements, discusses expectations for the USD LIBOR endgame, and ARRC’s work regarding the setting of a spread adjustment, the ARRC’s legislative proposal with New York State, and the ARRC’s Recommended Best Practices.

While the announced extension of certain USD LIBOR tenors to June 30, 2023 may be good news for parties to tough legacy contracts, it is also indicative of the economic and operational challenges that market participants face in effectively transitioning away from USD LIBOR. As market participants continue to prepare for this transition, Hunton Andrews Kurth LLP will continue to monitor and report on developments in this area. Please do not hesitate to contact any member of the LIBOR Transition Client Service Team with questions.

Happy Holidays!

 

¹ See Intercontinental Exchange, ICE Benchmark Administration to Consult On Its Intention to Cease the Publication of One Week and Two-Month USD LIBOR Settings at End-December 2021, and the Remaining USD LIBOR Settings at End-June 2023.

² See Board of Governors of the Federal Reserve System, Press Release, Federal Reserve Board welcomes and supports release of proposal and supervisory statements that would enable clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system; Financial Conduct Authority, Statements, FCA response to IBA’s proposed consultation on intention to cease US$ LIBOR; The International Swaps and Derivatives Association, Inc., Press Release, ISDA Statement on IBA, UK FCA and Federal Reserve Board Announcements on US Dollar LIBOR Consultation; Alternative Reference Rates Committee, ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR Proposed Path Outlines a Clear End Date for USD LIBOR; Would End New Issuances by End-2021, and Subject to Consultation Outcomes, Legacy Contracts Could Mature by Mid-2023, November 30, 2020.

³ See id.

⁴ See International Swaps and Derivatives Association, Inc., Press Release, ISDA Statement on IBA, UK FCA and Federal Reserve Board Announcements on US Dollar LIBOR Consultation.

⁵ Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation, Statement on LIBOR Transition, Nov. 30, 2020.

⁶ See id.; The International Swaps and Derivatives Association, Inc., Press Release, ISDA Statement on IBA, UK FCA and Federal Reserve Board Announcements on US Dollar LIBOR Consultation; Financial Conduct Authority, Statements, FCA response to IBA’s proposed consultation on intention to cease US$ LIBOR.