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The last publication of USD LIBOR on the basis of panel bank
submissions occurred on June 30, 2023. As of July 3, 2023, 1-, 3-
and 6-month USD LIBOR settings will be calculated using a synthetic
methodology based on CME Term SOFR plus the relevant ISDA fixed
spread adjustment. The UK Financial Conduct Authority (“the
FCA”) announced that “as with other synthetic
LIBOR rates, these settings are now permanently unrepresentative of
the underlying markets they previously sought to measure.” The
FCA is the regulator of LIBOR’s administrator, ICE Benchmark
Administration.
While many legacy LIBOR contracts include fallback language that
is triggered when LIBOR “ceases,” other contracts include
fallback language that is triggered upon a public statement by the
regulatory supervisor for LIBOR’s administrator announcing that
the LIBOR “is no longer representative.” Starting in
2019, model fallback language with such a
“non-representativeness” trigger has been published by
the Alternative Reference Rates Committee (“ARRC”) for,
among other products, adjustable rate mortgages, bilateral loans,
floating rate notes, securitizations, syndicated loans and private
student loans.
The FCA announcement also reminded market participants that the
synthetic version of LIBOR is intended to cease at end-September
2024 and that all new use of synthetic USD LIBOR is prohibited
under the UK Benchmarks Regulation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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