Client Alerts

IBOR Transition – IBA Announces Plan For Key USD LIBOR Tenors Beyond 2021

Client Alerts | December 3, 2020 | Commercial and Corporate Litigation | Derivatives | Hedge Funds | Risk Management

The ICE Benchmark Administration (“IBA”) announced earlier this week that it will consult on its intention to extend publication of the overnight and one-, three-, six-, and 12-month USD LIBOR rates until June 30, 2023. The June 2023 extension, however, applies only to legacy contracts—no new USD LIBOR contracts will be permitted after 2021.1

The end of USD LIBOR creates material operational and value transfer risks that are expected to cause significant and systemic disruptions to banks, their clients, consumers, and other parties with contracts tied to USD LIBOR. Failure of market participants to adequately prepare for these disruptions could undermine financial stability of banks (and their clients),2 cause unintended consequences to investment portfolios, and make widespread litigation all but certain for a variety of market participants. Although extending publication of the key USD LIBOR tenors does not address all LIBOR-related risks, it allows time for many legacy contracts to mature before the markets experience disruptions, which hopefully makes for a smoother transition.

While the June 2023 publication deadline is designed to give industry participants some relief and allow additional time for legacy contracts to expire, the end of LIBOR is imminent nonetheless. Indeed, the IBA intends to cease publication of the less utilized one-week and two-month USD LIBOR rates after December 31, 2021, and as noted above, no new USD LIBOR contracts will be allowed after 2021. Fund managers and other industry participants should therefore continue to review their current contracts carefully, proactively create remediation plans to address benchmark replacements (such as adding fallback language in contracts where needed), and address any other potential issues well in advance of the potential retirement dates.

Client alerts relating to the end of LIBOR can be found here and here.

———————————————————————————————————————————–

1 See e.g. https://ir.theice.com/press/news-details/2020/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/default.aspx; see also https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20201130a1.pdf

2 Government authorities and industry participants have repeatedly noted that failure to prepare for these disruptions “could undermine financial stability and banks’ safety and soundness.”  See https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20201130a1.pdf