The Phasing Out Of LIBOR: Initial Reaction And Preparation

1. Background: Elimination of LIBOR by 2021

As has been widely publicized, on July 27, 2017, the U.K. Financial Conduct Authority announced that LIBOR (London Interbank Offered Rate) the longtime global interest rate benchmark, will be phased out by 2021. LIBOR has been a reference rate used for the past 50 years to determine short-term interest rates, including base-rate derivatives, loans and other short-term instruments.

Both the Loan Syndications and Trading Association (LSTA) and the International Swaps and Derivatives Association (ISDA) have indicated that they will continue to monitor the situation and document reactions to and the evolution of alternative benchmarks.¹ We note that many commercial loan agreements already provide for alternative rates in the event LIBOR is not available. Those alternatives typically involve reverting to a different (more expensive) rate or the lender proposing a new benchmark at its discretion.