Until now, LIBOR replacement amendments have mostly consisted of placeholder language that describes the process and principles that the parties will follow to transition to a new rate while the market works out the details of how the new rate will work. The variations have included a consensual amendment approach, a hardwired approach of mutually agreed preferred alternative rates with the lender to determine the details, and a lender discretion approach where the borrower has little if any say in what the replacement will look like.<\/p>\n
Now that the phase out of LIBOR is on the horizon and the replacement details are starting to come together, it\u2019s time to focus on what the actual amendments to delete LIBOR and insert a new rate into the countless LIBOR loan agreements should look like.\u00a0 A traditional amendment approach would use surgical precision to delete every LIBOR definition and go section by section, and perhaps even sentence by sentence or line by line, to delete the use and effect of LIBOR throughout the agreement, then do the same thing to add in the provisions for the new rate.\u00a0 This approach depends on detailed due diligence<\/a> of the underlying loan agreements.\u00a0 Absolute precision is required to do it right- if the wrong term is used because a template definition was changed in a particular loan agreement, or the wrong section is referred to because a template provision was moved in a particular loan agreement, the amendment will also be wrong and won\u2019t work.\u00a0 Precision takes time and money, and it\u2019s not clear that borrowers will want to honor their obligations<\/a> to pay for expensive loan amendments that they never wanted in the first place.<\/p>\n Since no one is perfect, should we just tolerate sloppy drafting when it happens, or is there a better way?\u00a0 As complicated as it can be to amend countless loan agreements, the concept<\/em> is simple\u2014after a specified date, all LIBOR terms and provisions will be deleted and replaced with new SOFR (or Ameribor<\/a> or some other rate) provisions.\u00a0 Why can\u2019t the amendment just say that?\u00a0 The drafting required isn\u2019t literally that simple, but this type of universal descriptive amendment should be able to amend almost any loan agreement without knowing exactly what LIBOR terms are used, exactly where they are used or exactly what the LIBOR provisions say.<\/p>\n Our recent Alert<\/a> discusses how a universal descriptive amendment might work and the potential advantages it may have to successfully achieve LIBOR transition.<\/p>\n Duane Morris\u2019 LIBOR Transition Team:\u00a0\u00a0Roger S. Chari<\/a>, Chair,\u00a0Joel N. Ephross<\/a>,\u00a0Amelia (Amy) H. Huskins<\/a>,\u00a0Phuong (Michelle) Ngo<\/a>, and\u00a0Han Wang<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Until now, LIBOR replacement amendments have mostly consisted of placeholder language that describes the process and principles that the parties will follow to transition to a new rate while the market works out the details of how the new rate will work. The variations have included a consensual amendment approach, a hardwired approach of mutually … <\/p>\n