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LIBOR CESSATION UPDATE

February 1, 2021

The ICE Benchmark Administration Limited, the administrator of LIBOR (“IBA”), or its supervising authority, the UK Financial Conduct Authority ("FCA"), is expected to make an announcement in the first quarter of 2021 regarding the cessation of the publication of LIBOR based on the feedback received on the IBA consultation published in December 2020¹.  Such announcement may trigger certain obligations of agents in syndicated loan facilities or sole lenders in bilateral loan facilities under the LIBOR fallback language that lenders have added to their credit agreements over the past few years.

The IBA solicited feedback on their December consultation which stated its intention to cease the publication of the following:

  • the one-week and two-month USD LIBOR interest periods, and all interest periods with respect to the Euro, Swiss Franc, Japanese Yen and British Pound Sterling LIBOR rates, after December 31, 2021; and

  • the overnight and one-, three-, six- and twelve-month USD LIBOR interest periods, after June 30, 2023.

During a teleconference held on January 19, 2021, the Loan Syndications and Trading Association expressed its belief that the IBA or the FCA will likely make an announcement regarding the consultation during the first quarter of 2021 and as early as the first week of February 2021.

The directives issued under the announcement may constitute a "Benchmark Transition Event" under the LIBOR fallback language previously proposed by the Alternative Reference Rates Committee ("ARRC") for credit agreements, and may constitute a similar trigger event under non-AARC language.   If the IBA or the FCA announcement provides that the IBA will permanently or indefinitely cease to provide LIBOR and there will be no successor administrator, that would constitute a Benchmark Transition Event under LIBOR fallback language previously proposed by ARRC (and likely a similar trigger event under non-ARRC fallback language) that would trigger an obligation of the agent (or sole lender) to provide notice of such event to their borrowers.

Here are a few takeaways for our middle market lending clients:

  1. It is prudent for agents and lenders to begin reviewing their current credit agreements and any LIBOR fallback language contained therein to determine:

    1. what constitutes a trigger event,

    2. who determinates that a trigger event has occurred, and

    3. if a trigger event has occurred, what are the obligations of agents and lenders (for example, is there a notice requirement or an obligation to amend the credit agreement)?

  2. To aid in the foregoing review, it may be helpful for lenders to ask their counsel to prepare conformed versions of frequently amended credit agreements, so that all amendments are reflected in one document.

  3. Following any announcement by the IBA or the FCA, agents and lenders should review both the announcement and their current credit agreements to determine if a trigger event has occurred and provide any required notice to their borrowers (and, if applicable, take any other required steps).

  4. For additional thoughts on LIBOR transition, review our Client Alert dated December 4, 2020, which is located on our website (https://www.goldbergkohn.com/newsletter-129.html).

¹https://www.theice.com/publicdocs/ICE_LIBOR_Consultation_on_Potential_Cessation.pdf



February 1, 2021

Questions? Please contact:

Commercial Finance Practice Group
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The material in this client alert is based on information existing at that time. It should not be construed as legal advice or legal opinions based on any specific set of facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, an attorney-client relationship.

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