December 14, 2020 - The LSTA last week joined a number of other trade associations in submitting an amicus brief in a case of great importance to the syndicated loan market and many other financial markets. In McCarthy v. International Exchange, Inc., plaintiffs, who are consumer borrowers, allege that the setting of the LIBOR benchmark rate violates federal antitrust laws and seek an injunction to unwind every financial instrument that uses LIBOR as a reference rate, and to suspend the publication of LIBOR. Defendants include LIBOR panel banks as well as the Intercontinental Exchange (“ICE”), which administers LIBOR. Plaintiffs do not allege that defendants did anything to circumvent the rules governing the setting of LIBOR, but instead allege that the rules themselves are unlawful and lead to higher interest rates in consumer loans. Plaintiffs also allege that the bank defendants reached an unlawful agreement to each use LIBOR in the loans they issued.
Defendants argue that plaintiffs’ injunction should be denied because they are unlikely to succeed on the merits of their claim and lack standing. The defendants also argue that the balance of equities and the public interest weigh heavily against plaintiffs because enjoining enforcement of contracts that reference LIBOR would cause widespread harm to defendants, and immediately suspending publication of LIBOR would plunge markets into chaos. The trade associations’ amicus brief focuses mainly on the last point, noting that (a) the proposed injunction would inject uncertainty into global financial markets and pose risks for businesses, banks, and investors, and (b) plaintiffs’ proposed injunction would disrupt years of planning an orderly transition from LIBOR. The amicus brief details the wide use and importance of LIBOR as a reference rate and argues that precipitously halting its publication without firmly established protocols, rules, or legislation to facilitate an orderly transition to a different reference rate would inject uncertainty into financial markets. It notes that planning for the LIBOR transition began in 2014 with the establishment of ARRC and took on more urgency in 2017 when the Financial Conduct Authority announced it would no longer compel panel banks’ participation in LIBOR after 2021 (since extended to June 2023). Finally, it notes that market participants, including the LSTA and other amici and their members have, together with regulators, invested countless hours and significant resources to prepare for the eventual transition away from LIBOR in order to avoid the uncertainty and risk of a precipitous transition—the type of risk that would be wrought by granting plaintiffs’ proposed injunction. The LSTA will continue to closely monitor this case.