LIBOR Transition

As we move towards the end of LIBOR, the Bank of England and FCA have urged market participants to continue to take the necessary action to ensure they are ready.

The regulator confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

• immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
• immediately after 30 June 2023, in the case of the remaining US dollar settings

In early 2020, The Bank of England (“BoE”), the Working Group on Sterling Risk-Free Reference Rates (“Working Group”) and the Financial Conduct Authority (“FCA”), issued a statement reiterating that notwithstanding the adverse impact of Covid-19 on firms, the end of 2021 remains the target date for cessation of LIBOR.

At the same time, the Working Group acknowledged that it was not feasible to expect market participants to also meet the previously announced “end of Q3 2020” milestone to cease issuing new sterling loans (maturing after 2021) linked to sterling LIBOR. The Working Group accordingly published new recommendations and revised targets for LIBOR transition as follows:

1. New issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of Q1 2021.
2. All new and re-financed LIBOR-referencing loan products entered into after the end of Q3 2020 should include clear contractual arrangements in order to facilitate conversion ahead of end-2021, through pre-agreed conversion terms or an agreed process for renegotiation.
3. Lenders should be in a position to offer non-LIBOR linked products to their customers by the end of Q3 2020.

Most market participants have been including LIBOR fall-back language in new loans, often based on the Loan Market Association’s (“LMA”) replacement of screen rate clause. However, legacy loans remain an issue and, in this regard, the Working Group has indicated that they will continue to work on publishing “analysis” and “considerations” on how to deal with tough legacy loans.