USD LIBOR – Page 3 – Duane Morris Banking and Finance Law

August 31, 2020 by Roger S. Chari

To Hardwire or Not to Hardwire?

The question is not nearly as existential as the question phrased by William Shakespeare, but it is a significant one in the lending world as the transition from LIBOR to SOFR ideally happens by the middle of next year. The official answer is easy—hardwired LIBOR transition language is recommended by the ARRC for syndicated loans and bilateral loans. For diligent lenders, adopting hardwired language is part of a proactive approach to addressing the LIBOR transition process. By setting the broad parameters of the new rate up front now, the ultimate details of implementing the new rate can be simplified with a notice to the borrower rather than negotiating an amendment in the future when time is short. Our prior Alert discusses the hardwired approach in more detail.

Still, for some lenders there are solid reasons to adopt a wait and see approach and possibly skip the hardwired language. These lenders are no less diligent in their desire to do the right thing, but the developments in the LIBOR/SOFR transition are starting to accelerate, with major details still unsettled at this point. Determining how the broad market will handle the transition and keeping a lender’s actions in line with the market without getting ahead of the developments may suggest a more cautious approach.

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August 27, 2020June 17, 2021 by Duane Morris

Is There Room for AMERIBOR in a SOFR Future?

With the phase out of LIBOR just over a year away and the ARRC having identified the Secured Overnight Financing Rate (SOFR) as its preferred replacement for US dollar loans, it appears that the market has the guidance it needs to make the transition.

Not so fast, say some Main Street banks. SOFR may work for much of the loan market and particularly larger banks that can borrow on a secured basis. However, this does not represent the reality for many smaller and regional banks, which often can borrow only on an unsecured basis. Using SOFR can lead to a mismatch between the borrowing risk that such banks take and the interest they can earn on their loans.

What are such banks to do? Some of them have voiced their support for an alternative LIBOR replacement rate―the American Interbank Offered Rate (AMERIBOR).

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August 18, 2020June 17, 2021 by Duane Morris

A Hot Issue for a Hot Summer: Time to Understand ISDA IBOR Benchmark Fallbacks

As we patiently wait for the International Swaps and Derivatives Association (ISDA) to publish its long planned IBOR Fallback Protocol and IBOR Fallback Supplement for interest rate derivatives, we thought we would highlight some recent announcements on the topic.

According to ISDA’s letter on July 22, 2020 to the Alternative Reference Rates Committee (ARRC), ISDA planned to finalize the Protocol and the Supplement by the end of July. On July 29, 2020, ISDA announced that it would publish the Protocol “soon”. This is hardly the first time that things have been delayed, but it’s important to get it right. Among other things, it’s possible that ISDA is still waiting for a positive business review letter from the US Department of Justice and similar feedback from competition authorities in other jurisdictions.

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August 10, 2020 by Phuong (Michelle) Ngo

For LIBOR Transition Procrastinators, SOFR Starter Kit to the Rescue!

LIBOR is going away. It was a distant pronouncement in 2017, and many thought it wouldn’t happen, or would get delayed. But it’s coming. Soon. December 31, 2021 may still seem a long way off, but there’s a lot to do between now and then. Market participants may be forgiven for concentrating on the global pandemic the last few months, but regulators in many arenas have stepped up their efforts in the past month to get the word out on LIBOR transition and get everyone moving forward on the right track.

Following its Summer Series on LIBOR transition, on August 7, 2020, the Alternative Reference Rates Committee of the New York Fed published the SOFR Starter Kit, a set of factsheets to inform the public about the transition away from USD LIBOR to SOFR. The SOFR Starter Kit is intended to ensure market readiness for the transition and help participants in markets using USD LIBOR to quickly familiarize themselves with the background information of, and main issues related to, the transition. The SOFR Starter Kit has three parts:

Part I (History and Background) summarizes the background on USD LIBOR, the history of the ARRC, and its selection of SOFR.
Part II (Key Facts about SOFR) explains how SOFR works, facts by numbers about SOFR, as well as common questions and misconceptions about the SOFR.
Part III (SOFR Next Steps) lays out numerous tools that the ARRC has made available to facilitate a smooth transition from USD LIBOR to SOFR, including a set of best practices, the User’s Guide to SOFR along with several ARRC-recommended conventions, the recommended fallback language for voluntary use in USD LIBOR-linked contracts, and other helpful tools from the ARRC.

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