Skip to main content

Clifford Chance

Clifford Chance

IBORs and benchmark reform

Exploring the impact of transitioning from LIBOR and other IBORS

The transition from LIBOR and other IBORs could be the most significant change to financial markets in recent years.

Against a backdrop of regulatory encouragement, participants in the financial markets have been planning and working towards transition away from LIBOR towards alternative risk free rates.

Our experts can help you to understand what this will mean for your transactions and prepare for the future.

Synthetic LIBOR and UK Contractual Continuity: Critical Benchmarks (References and Administrators' Liability) Bill

Most non-USD LIBOR tenors and currencies will cease altogether on 31 December 2021. A few Sterling and Yen tenors are likely to continue in a modified form (“synthetic LIBOR”) for a limited period, pursuant to powers given to the UK FCA. Such synthetic LIBOR would replace LIBOR, with the intention that it would be available for use in a limited range of "tough legacy" contracts. Those eligible contracts are yet to be specified by the UK FCA.

Legislation giving the UK FCA powers to declare a critical benchmark as unrepresentative and to demand modification of methodologies - as well as to determine which contracts or arrangements might use the modified rate - are already in place. This was done via amendments to the UK Benchmarks Regulation made by the UK Financial Services Act 2021. A missing element was UK legislation to address contract continuity, where parties to an eligible contract use synthetic LIBOR, rather than the LIBOR rate specified in the contract. This is being addressed in a new Bill introduced into the House of Lords on 8 September 2021: the Critical Benchmarks (References and Administrators' Liability) Bill. Read more about Synthetic LIBOR and UK Contractual Continuity: Critical Benchmarks (References and Administrators' Liability) Bill.

New York Governor signs legislation to address cessation of USD LIBOR

On April 7, 2021, New York Governor Cuomo signed into law Senate Bill 297B/Assembly Bill 164B, available here, to mitigate risks and provide continuity for certain financial products at the time that U.S. dollar ("USD") LIBOR is no longer published or is determined to not be representative. Read more about the New York Governor signing legislation to address cessation of USD LIBOR.

FCA announcement on the end of LIBOR and implications for loan documentation

In light of the FCA's announcement (the "Announcement") on the future cessation and loss of representativeness of the LIBOR benchmarks, you may be wondering what this means for loan transactions. In this briefing we examine the formal confirmation of the end of LIBOR and the documentary implications for English law loan transactions. Read more about the FCA announcement on the end of LIBOR and implications for loan documentation.

UK FCA announcement on cessation and loss of representativeness of LIBOR benchmarks: What next for Derivatives?

On 5 March 2021 the UK Financial Conduct Authority (the "FCA") published an announcement on the future cessation and loss of representativeness of LIBOR benchmarks (the "FCA LIBOR Announcement"). This announcement constitutes an "Index Cessation Event" for the purposes of the ISDA IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol. The publication of this announcement also triggers the fixing of the spread adjustment for each LIBOR setting under the terms of the Bloomberg IBOR Fallbacks Rate Adjustment Rulebook. The market now has a clear timetable for the cessation of LIBOR benchmarks and, for derivatives transactions that include an index cessation event trigger, confirmation of the dates from which the adjusted risk-free rate fallbacks for transactions referencing these LIBOR rates will apply as well as the quantum of the spread adjustment to be applied to these adjusted fallback rates. Read more about the UK FCA announcement on cessation and loss of representativeness of LIBOR benchmarks: What next for Derivatives?

LIBOR Transition and Aircraft lease Financings

This is the third in our series of briefings examining the implications of LIBOR cessation for aviation transactions. Since summer 2020 and in the midst of the ongoing Coronavirus pandemic, there has been considerable and laudable progress by regulators, national working groups and institutions on LIBOR transition and broader global benchmark reform. The ARRC's recommendation that USD LIBOR is replaced by SOFR brings some welcome clarity for the industry, given that most cross-border aircraft transactions are USD denominated. However, remaining uncertainties and divergence between products and markets mean that the work to ensure a smooth and balanced transition for commercial parties is only just beginning.

This briefing summarises aspects which we consider crucial for industry participants to address in their internal planning, documentary due diligence and negotiations with counterparties. Read more about LIBOR Transition and Aircraft lease Financings.

Interim Guidance Provided by Revenue Procedure Facilitates LIBOR Transition

The Internal Revenue Service recently issued Revenue Procedure 2020-44, which is intended to facilitate the market's transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates through the adoption of fallback language developed by the Alternative Reference Rates Committee or the International Swaps and Derivatives Association.  This revenue procedure is effective for modifications to contracts occurring on or after October 9, 2020 and before January 1, 2023.  U.S. taxpayers, however, may rely on Revenue Procedure 2020-44 for modifications to contracts occurring before October 9, 2020. Read more about the Interim Guidance Provided by Revenue Procedure Facilitates LIBOR Transition.

LIBOR and the Syndicated Loans Market - Milestones and Documentation

In the UK, regulators and the Working Group on Sterling Risk-Free Reference Rates (£RFR Working Group) have long been urging loan market participants to transition away from using LIBOR on transactions. Whilst, to date, such transition has been challenging for the loan markets, recent publications such as conventions for the use of SONIA and the LMA documentation discussed below, will help generate impetus for transition. Read more about LIBOR and the Syndicated Loans Market - Milestones and Documentation. 

Transitioning from LIBOR: Implications for Islamic Finance

The discontinuation of LIBOR as an interest rate benchmark raises a number of issues for Islamic finance transactions. This briefing looks at the challenges ahead and outlines some of the potential solutions. Read more about Transitioning from LIBOR: Implications for Islamic Finance.

IBORs and the Transition to Risk Free Rates in the Singapore Debt Capital Markets

The impending end of the London Interbank Offered Rate, "LIBOR", has been a discussion point for financial markets participants ever since the Wheatley Review, and thereafter, a speech by Andrew Bailey, Chief Executive of the UK's Financial Conduct Authority (FCA) on 27 July 2017 which famously heralded its demise. Market participants need to prepare for the likelihood that LIBOR will cease to exist by the end of 2021. Even if LIBOR continues to be available into 2022, the FCA may determine that it is no longer representative of its underlying market. Since 2014, the message from international regulators has been clear: with respect to the risks presented by the end of LIBOR, there needs to be a move from LIBOR to near "risk-free rates" (RFRs) which are anchored in active and liquid underlying markets. This briefing examines the impact of the transition from LIBOR to RFRs with a specific focus on the Singapore and Singapore dollar debt capital markets, and outlines what issuers and their advisers will need to consider as we approach the deadline for the end of LIBOR. Read more about IBORs and the transition to risk free rates in the Singapore debt capital markets.

LIBOR transitioning - the impact on facility agents

With LIBOR due to be phased out by the end of 2021, loan agents ("agents") need to understand how this will affect their business and how to best prepare themselves for such an unprecedented change. This briefing focuses on the impact of LIBOR transitioning for agents – both from the perspective of their own position and as representatives for lenders. Read more about LIBOR transitioning and the impact on facility agents.

LIBOR transitioning - navigating the impact for trustees in the capital markets

Corporate trustees ("trustees") for notes that mature after the end of 2021 should brace themselves for LIBOR being phased out. While trustees have been closely monitoring benchmark replacement terms since the FCA signalled that it would no longer compel banks to submit LIBOR submissions, LIBOR transitioning will increase as 2021 draws closer and trustees will need to be prepared for the impact on their role. Read more about the impact of LIBOR transitioning for trustees

US Dollar LIBOR Transition: Challenges for Securitizations and Note Issuers

On January 21, 2020, the Alternative Reference Rates Committee (the "ARRC") published a consultation regarding spread adjustments for cash products such as floating rate notes and securitizations. This consultation solicits input from market participants regarding calculation methodologies for spread adjustments. The ARRC has committed to recommending spread adjustments as part of its efforts to provide robust contractual fallback provisions to facilitate the transition from US Dollar LIBOR-based floating rates to SOFR-based floating rates. The year 2020 is a critical year for preparing for LIBOR cessation. This briefing discusses benchmark transition challenges related to LIBOR-based floating rate notes and securitizations and related issues to be considered by floating rate note issuers, securitization sponsors and servicers. Read more on the US Dollar LIBOR transitions and the challenges for securitizations and note issuers.

LIBOR transition for the infrastructure sector

With 2020 set to be a critical year for LIBOR transition, the infrastructure market will face some significant challenges as it transitions towards the use of risk-free rates (RFRs). We look at some of those challenges and the steps market participants should be taking now to ensure a smooth transition before the end of 2021. Read more about LIBOR transition for the infrastructure sector.

Transition from LIBOR to an Alternative Benchmark Rate Raises Concerns Particular to REMICs

On October 8, 2019, the U.S. Department of Treasury proposed regulations that would address the tax issues for Real Estate Mortgage Investment Conduits that could arise from the impending transition away from interbank offered rates as reference rates for floating rate debt. As discussed in this briefing, the Proposed Regulations include some important conditions that – if adopted as proposed – will require close oversight to confirm that they are met.

Given the severity of the potential ramifications of not meeting these requirements, it is critical that all participants of a REMIC deal are aware of, and seek legal advice regarding, the tax aspects of switching to a replacement benchmark rate. Read more about the Transiton from LIBOR to an Alternative Benchmark Rate and the concerns raised in particular to REMIC's.

IBOR and benchmarks newsletter

We report on key developments happening around the world

More resources