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LIBOR Fading Away: What Lenders and Borrowers Should Know

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.

A critical aspect of this transition is the “fallback,” i.e., replacement, for LIBOR. Over the past several months, much has been written about fallbacks for LIBOR, and the Secured Overnight Financing Rate (SOFR) has garnered much attention. SOFR, however, is not the only fallback and in some situations may not be the most suitable fallback.

With respect to loans that involve interest-rate swaps, e.g., LIBOR to a fixed interest rate, the transition could be more complex. On Oct. 23, 2020, the International Swap Derivatives Association (ISDA) published its 2020 IBOR Fallbacks Protocol and its ISDA LIBOR Fallbacks Supplement, which became effective on January 25, 2021. In view of the FCA’s announcement, the ISDA has issued guidance with respect to swap derivatives involving LIBOR that should be reviewed, particularly by lenders.

Besides commercial loans, the cessation of LIBOR will impact other loans based on LIBOR, including student loans.

Lenders and Borrowers

The impact of the FCA’s announcement has served to intensify the need for lenders and borrowers to undertake in earnest the transition from LIBOR. Time is now of the essence. In particular, lenders are more strongly encouraged to:

  1. Perform an inventory of their loan portfolios to identify LIBOR-based loans, including, notably, those that involve swaps

  2. Develop a plan to communicate critical information to their borrowers

  3. Take the steps necessary for their systems and software to be equipped to handle the LIBOR transition

  4. Discuss with legal counsel the actions that need to be taken, including the development of new form documents

©2021 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XI, Number 124



About this Author

John F. Lushis, Jr. Economic Development Norris McLaughlin Pennsylvania

John F. Lushis Jr., a Member of the firm and Co-Chair of the Economic Development Practice, focuses his practice on real estate, commercial transaction law, and environmental law.

He provides counsel on an extensive diversity of transactions including leases, acquisitions and divestitures, tax-exempt and conventional financings, brownfields redevelopment, and an array of commercial agreements. John has worked on multi-million-dollar loans and major tax-exempt financings for businesses and non-profits including Cetronia Ambulance Corps, Lafayette College, Lehigh University, Moravian...

Peter D. Hutcheon Corporate Governance Lawyer Norris
Of Counsel

Peter D. Hutcheon practices primarily in the areas of business governance, commercial transactions, securities, banking, and finance.

Peter counsels management of public and private companies and banking institutions on governance matters.  He also has particular expertise with respect to indemnification and insurance issues affecting directors and officers.  Peter has represented parties in major public-private partnership financings.  He also represents clients seeking investment capital from private placements, venture capital, and private...

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