The London Interbank Offered Rate (“LIBOR”), the leading global benchmark interest rate, will be phased-out in 2021. To more effectively serve the legal needs of market participants during this transition period to a new benchmark, the Firm’s LIBOR Transition Task Force, a highly focused and specialized cross-disciplinary team, has become a trusted advisor to clients in the loan, securitization and derivatives markets as they work to adopt and implement replacement benchmarks for LIBOR.
Since the 1980s, LIBOR, the benchmark index that reflects the rate at which banks borrow money from each other on an uncollateralized basis, evolved to become the foundation on which interest rates on various loans and financial transactions throughout the world are calculated. Faith in LIBOR as a reliable reference rate, however, was damaged by charges that the reporting banks manipulated the rate before and during the financial crisis, taking larger profits from derivatives based on the manipulated rates. In 2014, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York (the “New York Fed”) convened the U.S. Alternative Reference Rates Committee (“ARRC”) in order to identify an alternative to U.S. Dollar LIBOR and in July 2017, the U.K.’s Financial Conduct Authority announced that LIBOR would be phased out by 2021.
LIBOR’s phase out is now less than two years away, and despite recent developments and progress in moving the market forward toward an orderly transition from LIBOR, the amount of work which remains to be undertaken by market participants in the transition period is vast and should not be underestimated. Although the path seems clearer for new transactions, legacy transactions present a complicated challenge. The mechanisms for closing out legacy contracts will need to be addressed in order to meet the demands of market participants who anticipated pre-determined and forward-looking floating rate payment structures.
Seward & Kissel attorneys involved in the loan, securitization and derivatives markets have been monitoring and will continue to monitor the markets for the adoption of alternative index rates. In addition, we continue to review the various safeguards and amendment procedures in existing agreements while analyzing how the discontinuance of LIBOR impacts such transactions and their related contracts.
Composed of attorneys from our Corporate Finance, Derivatives and Trading, Global Banking & Institutional Finance, Investment Management, Maritime & Transportation Finance, Real Estate and Structured Finance and Asset Securitization practice groups, the team is advising our clients with respect to navigating the difficult issues presented by the phase-out of LIBOR.
If you would like to learn more about Seward & Kissel’s LIBOR Transition Task Force or discuss a particular matter, please contact any one of our team members.