May 4, 2020 - Key Takeaways:

  • The FCA, Bank of England, ARRC and U.K. Sterling Working Group have stated that they still are working on the assumption that LIBOR ceases on or around 12.31.21.
  • Some interim milestones may be delayed. Most notably, the U.K. Sterling Working Group pushed their goal of “no new Sterling LIBOR loans” timeline from 9.30.20 to 3.31.21.

The public and quasi-public sector has spoken: Coronavirus notwithstanding, we still have to assume LIBOR ends on or around 12.31.21 because submitting banks have not announced that they will submit LIBOR thereafter. However, interim milestones may be somewhat delayed as market participants address today’s Covid-19 challenges.

In late March, the FCA noted that, despite the Coronavirus crisis, “firms cannot rely on LIBOR being published after the end of 2021”. The Financial Stability Board, in reprioritizing its workstreams reiterated that “[t]he transition from LIBOR remains a priority as firms cannot rely on LIBOR being produced after end 2021.” And in FAQ 17, the ARRC stated that “it remains clear that the financial system should continue to move to transition by the end of 2021.” Thus, the final deadline remains in place, simply because there is no other choice.

However, there is recognition that interim deadlines may shift. Last Wednesday, the Sterling Working Group acknowledged that the timeline in loans may need to be adjusted. Most critically, the working group has previously recommended that there be no new sterling LIBOR loan issuance after 3Q20; this deadline has been extended until 3.31.21. However, progress to transition loans should accelerate, not decelerate. To do so, by the end of 3Q20, lenders should be in a position to offer non-LIBOR based products to clients. In addition, after the end of 3Q20, lenders should include language in new loans that facilitates conversion from sterling LIBOR before the end of 2021, through pre-agreed conversion terms or an agreed process for renegotiation.

In a similar vein, the ARRC recently published its 2020 Objectives, which lay out a plan to head successfully toward LIBOR cessation.  For loans, there are several key objectives: Refresh hardwired fallbacks (with optional opt-in trigger) by 6.30.20, release recommended conventions by 7.31.20 and continue to work with vendors to operationalize SOFR. The LSTA is a member of the ARRC, co-chairs the ARRC’s Business Loans Working Group (BLWG) and hosts a weekly LIBOR Q&A call for LSTA members.

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On June 30th the ARRC published an updated recommendation for fallback language for syndicated loans (“the 2020 recommendation”).