LIBOR publication will cease on 31 December 2021 - possibly sooner, if major banks cease to supply rates. No new LIBOR debt should have been issued after Q1, and the Bank of England's Sterling Working Group has reiterated that all legacy LIBOR loans should be transitioned to a risk-free-rate (probably SONIA) by the end of September.

There is work to be done - commercially, operationally and legally - to ensure a smooth transition:

  • Commercially: parties should be discussing transition parameters, in particular the credit adjustment spread for any existing LIBOR debt;
  • Operationally: systems, and treasury teams, must be ready to calculate and apply backward-looking SONIA-based interest rates; and
  • Legally: legacy LIBOR loans need to be amended to adopt SONIA-interest rate calculations, to apply from either: (1) the amendment date; or (2) a pre-agreed trigger date (e.g. once LIBOR ceases to be published). Consider whether all finance documents should be aligned to the same methodologies and market conventions. The "rate switch" option may be useful for borrowers wanting to actively transition their loan book whilst leaving more time to prepare operationally. But both options will require amendment, and possibly a full restatement, of the underlying contract. Fallback provisions may well be unclear and will be impractical for any length of time. Redocumentation is needed.

Conversations need to be had, and decisions need to be made. The sooner this process is started, the better. We would be happy to assist.

Originally published 13 May 2021.

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