June 18, 2024 - Recently, the UK’s FCA released its Article 21(3) notice of first decision (“Notice”) to compel ICE Benchmark Administration (“IBA”) to continue publishing the remaining synthetic LIBOR versions: 1-month, 3-month and 6-month USD Libor tenor settings (“USD settings”). The compulsion period shall run for three months beginning immediately after the June 28th publication of these synthetic USD settings and ending immediately after their final publication on September 30th. The Notice confirms the FCA’s original stated intention to have USD settings permanently cease after end-September 2024. (“The [FCA] does not intend to use its powers to compel IBA to continue to publish the US Dollar LIBOR Versions beyond 30 September 2024.”)

Pursuant to the Benchmarks Regulation (BMR), the FCA has the authority to compel IBA to publish certain LIBOR settings on a synthetic basis (i.e., Term SOFR plus corresponding ISDA spread adjustment). To support an orderly winddown of LIBOR the FCA used this authority to compel IBA to publish synthetic versions of the USD settings (as well as certain non-USD LIBOR tenor settings) for market participant use in legacy agreements. Currently, only the USD settings are still being published by IBA and that compulsion period is due to expire on June 28th. This Notice extends that period for three more months.

Members should take stock of any existing credit agreement that references one or more of the USD settings and endeavor to transition any affected agreement to a replacement rate ahead of permanent cessation. Much of the learning from the June 2023 LIBOR phaseout will apply here. We highlight our 2023 “Best Practice for LIBOR Remediation Amendments” advisory.  This advisory serves as a single resource reminding members about LSTA guidance on amendments and specific considerations to keep in mind with respect to LIBOR remediation amendments. Much of this advisory comes from our 2021 “LIBOR Transition Checklist” advisory and continues to focus on transparency, vigilance, and communication.

Again, we encourage members to transition any remaining affected credit agreements ahead of end-September. However, we do wish to remind members of some technical details around permanent cessation.

  • It is critical that administrative agents who process rollover and reset notices, particularly the Operations teams, are aware of the LIBOR transition implications after end-September.
    • LIBOR is generally subject to a three-day intent notice (or interest election request) from the borrower and is generally set two “Business Days” (as defined in the relevant credit agreement) prior to the first Business Day of a new loan, interest period or rate repricing event.
    • Any borrowing intent notice (or interest election request) that is provided to an administrative agent on or after September 30th will not be effective until after LIBOR permanently ceases. This may result in unintended outcomes and members should review their credit agreements to understand what those outcomes might be.
  • It is important to carefully read the relevant credit agreement to determine how “LIBOR” is defined and what constitutes a “Business Day” for purposes of setting a rate for an interest period that will begin in October. Generally speaking:
    • New loans, interest periods or rate repricing events that commence on or before October 2, 2024 would be able to use the final USD settings.
    • If pursuant to the credit agreement, the rate is set two Business Days earlier, new loans, interest periods or rate repricing events that begin on and after October 3, 2024 will not be able to use the final USD settings.

For more information, please contact Tess Virmani and Ellen Hefferan.

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