The era of risk-free rates has begun and the era of interbank offered rates (and this blog) is ending.

The key LIBOR rates, other than USD LIBOR, are long retired. USD LIBOR continues to exist only as a synthetic rate to aid the transition of tough legacy contracts, and that too will end in a little more than a year. Even the lagging sector of US loans is close to completing its transition from LIBOR to risk-free rates (largely the Secured Overnight Financing Rate, or SOFR). The Loan Syndications & Trading Association reported in late June that, based on data from JPMorgan, it estimated that approximately 65% of outstanding loans had transitioned away from LIBOR. Between now and the end of 2023, as interest periods set prior to 30 June 2023 roll over, that number will continue to increase. The years-long transition of key LIBORs was completed “with little fanfare,” in the words of the LSTA.

So, where is the market? There still are several global benchmarks in the process of transitioning to risk-free rates. Notably active in the current market are Canada (CDOR is expected to cease publication on 28 June 2024), Singapore (SIBOR is scheduled to be discontinued after 31 December 2024), and Japan (which, having retired JPY LIBOR in 2021, now is consulting on the cessation of Euroyen TIBOR at year-end 2024). However, the Financial Stability Board notes that the “final major milestone in the LIBOR transition” ended in June 2023 with the cessation of USD LIBOR.

We have appreciated the opportunity to keep you abreast of this important and monumental work, and our related analysis, for the last three year, but the substantial completion of the transition has led us to retire this blog. After this final post, the blog will remain here for future reference but we will continue to monitor the market actively, and report on market developments regularly, via our IBOR Digest. Please continue to join us there and thank you for your readership over the years.

Fannie Mae and Freddie Mac recently provided additional details of the necessary changes to outstanding adjustable-rate mortgage loans that currently are linked to LIBOR indices.  As expected, these changes largely mirror the changes mandated in the recently enacted Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”), as well as current practice for new Fannie Mae and Freddie Mac loans. On the heels of the adoption of the Regulation Implementing the Adjustable Interest Rate (LIBOR) Act, Fannie Mae and Freddie Mac, on December 22, 2022, announced their choice of SOFR-linked benchmark replacements for existing “legacy” LIBOR-linked mortgage loans for which they are the “determining person,” as defined in the LIBOR Act.

Read the full article at Mayer Brown’s Consumer Financial Services Review blog.

Attention Loan Market Participants: There are fewer than 145 days until US dollar LIBOR no longer is published on a representative basis. While some segments of the market are well advanced in transitioning from the London InterBank Offered Rate to the Secured Overnight Financing Rate, the lending market generally is behind. Given the substantial volume of outstanding LIBOR contracts, the time to transition away from LIBOR is now!

Read the full Legal Update.

On December 16, 2022, the Board of Governors of the Federal Reserve System adopted final rule 12 C.F.R. Part 253, “Regulation Implementing the Adjustable Interest Rate (LIBOR) Act (Regulation ZZ)” (“Rule 253” or the “Final Rule”). Rule 253 identifies SOFR-based benchmark rates that will replace U.S. dollar LIBOR in certain financial contracts after June 30, 2023. Rule 253 will become effective 30 days after its publication in the Federal Register. The Final Rule responds to several rulemaking requirements of the Adjustable Interest Rate (LIBOR) Act, and resolves some remaining questions about how outstanding USD LIBOR contracts will transition to a replacement rate after USD LIBOR ceases publication.

Read the full Legal Update (PDF)

As we await the Federal Reserve Board to finalize the LIBOR transition regulations set forth in its notice of proposed rulemaking – Regulation Implementing the Adjustable Interest Rate (LIBOR) Act,[1] we are grateful[2] that on 23 November 2022 the Financial Conduct Authority (“FCA”) published Consultation Paper CP22/21: Consultation on ‘synthetic’ US dollar LIBOR and feedback to CP22/11 (“CP22/21”), in which it (a) proposes to require continued publication, under an unrepresentative “synthetic” methodology, of 1-, 3-, and 6-month USD LIBOR until the end of September 2024 and (b) announced that 3-month synthetic GBP LIBOR will continue to be published until the end of March 2024, after which each will cease permanently. Comments are requested on or prior to 6 January 2023.

Continue Reading Thankful for Increasing Clarity on LIBOR’s Final Fate

On 19 July 2022, the Federal Reserve Board (the “Board”) published a notice of proposed rulemaking – Regulation Implementing the Adjustable Interest Rate (LIBOR) Act, as it was required to do by Section 110[1] of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”),[2] which was signed into law on 15 March 2022.[3]

In its related press release, the Board notes, “Consistent with the [LIBOR Act], the proposal would replace references to LIBOR in certain contracts with the applicable Board-selected replacement rate after June 30, 2023. The contracts include those governed by [US] law that do not mature before LIBOR ends and that lack adequate fallback provisions. The proposal identifies separate Board-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, and all other affected contracts. As required by the [LIBOR Act], each proposed replacement rate is based on the Secured Overnight Financing Rate.”

Continue Reading Switching to SOFR: Proposed Rule Published to Implement the 2022 Federal LIBOR Act

Market participants have been warned not to kid themselves. The last remaining settings of the London InterBank Offered Rate—those relating to select US Dollar tenors—are scheduled to become unavailable following publication on 30 June 2023. After this final USD LIBOR publication, the sunsetting of “the world’s most important number” will be complete.

Continue Reading No foolin’: USD LIBOR to sunset one year from today

As market participants evaluate their loan portfolios and implement strategies to transition away from the London Interbank Offered Rate (“LIBOR”), they must address not only third-party loans, but related-party loans as well.

Continue Reading LIBOR Phase Out – Tax Implications in the Context of Related-Party Loans

With the inclusion of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) as Division U of H.R. 2471, Consolidated Appropriations Act, 2022 (the “Appropriations Act”) passed by the U.S. House of Representatives on 9 March 2022 and the Senate on 10 March 2022, the United States is on the cusp of a federal solution for legacy LIBOR-linked contracts that contain inadequate fallback provisions, or none at all. Indeed, the final version of the legislation provides additional legal certainty with respect to the use of non-SOFR benchmarks not included in the earlier version of the legislation passed by the U.S. House of Representatives.

Continue Reading Consolidated Appropriations Act Advances Federal LIBOR Transition Solution

On 30 December 2021, the U.S. Internal Revenue Service (IRS) published final regulations for IBOR transition. Our 7 January 2022 Legal Update provides background on the principle U.S. federal income tax concern with IBOR-related amendments to existing contracts, an overview of previous IRS guidance aimed at addressing the concern, the types of modifications that can fit within the final regulations, the relief provided for modifications that do fit, and a few questions left open by the IRS.

Read the full Legal Update (PDF)