January 21, 2021 - Once ICE Benchmark Administration’s (“IBA”) consultation on its intentions to cease the publication of LIBOR closes on Monday, their feedback statement could follow shortly thereafter. We will have to wait and see what that statement contains, but understanding the potential implications of that statement for fallback language can – and should – happen today.

As reported here, the IBA is consulting on its intention to cease the publication of (i) all GBP, EUR, CHF and JPY LIBOR settings, and the 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and (ii) the Overnight and 1, 3, 6 and 12 Month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023, subject to any rights of the FCA to compel IBA to continue publication.

What form could LIBOR announcements likely take?

  • The IBA states that it will permanently or indefinitely cease to provide LIBOR and there is no successor administrator.

Trigger Event? Yes, for ARRC recommended fallback language and many other variants of fallback language.

  • The FCA states that the IBA will permanently cease publishing LIBOR and there is no successor administrator.

Trigger Event? Yes, for ARRC recommended fallback language and certain other variants of fallback language.

  • The FCA states that LIBOR will no longer be representative as of a certain future date.

Trigger Event? No, for ARRC recommended fallback language or any other variant of which the LSTA is aware.

What is the effect of a fallback language trigger event?

It very much depends on the terms of the relevant credit agreement. It is easiest to speak to ARRC recommended fallback language. Under all sets of ARRC recommended fallback language, the administrative agent or sole lender, as the case might be, would be required to notify the transaction parties that a trigger event (or “Benchmark Transition Event”) has occurred. It is important to understand, however, that the occurrence of this event does not require a transition away from LIBOR. In the case of amendment approach language, the occurrence of this event means that the administrative agent and borrower may begin the process of amending the credit agreement to select a benchmark replacement rate and adjustment but such amendment could not take effect before the 90-day window preceding the cessation of LIBOR. In the case of hardwired approach language, the transition away from LIBOR would not occur until the date that LIBOR permanently ceases.

Our understanding is that even many non-ARRC variants of fallback language may also provide a similar notice requirement to that described above. More than that, certain variants of fallback language may have language providing that the administrative agent and borrower will begin the process of amending the credit agreement – although whether there is any qualifier as to when that would happen is another variable to consider.

With respect to the prevalent requirement that the administrative agent or sole lender provides notice to the borrower and lenders or borrower, as applicable, the LSTA is working with its Primary Market Committee to offer a generic form of notice that is designed to be used across loan platforms. We believe this may prove to be a useful tool to members.

What do market participants need to be looking out for?

Market participants need to be reviewing the fallback language in their LIBOR referenced contracts to understand: 1) who determines that a trigger event has occurred, 2) what are the specified trigger events, and 3) what does a trigger event mean – is there a notice requirement? Is there an amendment requirement? As we know, the loan market operates on bespoke, transaction-specific credit agreements so universally applicable observations are hard to come by, however, Thomson Reuters’s Practical Law recently conducted a survey of more than 200 credit agreements publicly filed in 2020 which offers valuable insight into some variants which exist. For further information, please contact Tess Virmani.

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