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12 January 20213 minute read

Extension of USD LIBOR – ICE Benchmark Administration Consultation

On 30 November 2020, the ICE Benchmark Administration (IBA) which compiles and oversees LIBOR, announced that it will hold a consultation on its intention to extend most US Dollar LIBOR (USD LIBOR) tenors until 30 June 2023. IBA’s plans are based on feedback and information received from panel banks and also reflects its discussions with the UK Financial Conduct Authority (“FCA”) in recognition of the time needed for the market to deal with legacy transactions. This announcement was made in contrast to an earlier IBA announcement on 18 November 2020, that all GBP, EUR, JPY, and CHF IBOR tenors would cease publication after 31 December 2021.

The IBA consultation paper was subsequently published on 4 December 2020 and includes a proposal (i) to cease the publication of the one-week and two-month USD LIBOR settings following the LIBOR publication on 31 December 2021 and (ii) subject to compliance with applicable regulations, to extend publication of the other remaining LIBOR tenors (i.e. the more widely used of overnight, one, three, six and twelve-month USD LIBOR) until 30 June 2023. The consultation will remain open for comments until 25 January 2021.

It is expected that after the consultation period, the IBA will reaffirm the extension plans that it announced in November.

The UK and US Banking Regulators have issued statements and expressed support for IBA’s announcement. According to the FCA, clarifying the end date for USD LIBOR will “incentivize swift transition, while allowing time to address a significant proportion of legacy contracts that reference USD LIBOR.” The FCA’s announcement was issued in tandem with a joint statement of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (applicable to the financial institutions that they regulate), and a press release by the Board of Governors of the Federal Reserve System. The statements by the U.S. regulators shared the following main points, which apply to their regulated institutions but may also have implications for other market participants:

  • financial institutions are encouraged to stop entering into new USD LIBOR contracts “as soon as practicable,” and no later than 31 December 2021;
  • entry into such contracts after 31 December 2021, would create safety and soundness risks for financial institutions;
  • the USD LIBOR 30 June 2023 cessation date will allow more time for existing legacy USD LIBOR contracts to mature; and
  • financial institutions should use this additional time to continue to prepare for the transition away from LIBOR.

Depending on the outcome of the consultation, if the proposal proceeds, it will impact transition milestone dates for USD LIBOR deals. This development will also be relevant to negotiations on deals and in particular multi-currency facilities agreements’ interim documentation such as the “Replacement of Screen Rate” clause dealing with LIBOR transition to date which are currently premised on a December 2021 cessation date for all LIBOR currencies. Whilst this proposal would give parties additional time for the remediation of legacy USD LIBOR cash products, the regulators emphasise that parties should still continue with their transition efforts whilst monitoring these developments.

Please find below a link to the announcements referenced above: