LIBOR Transition: Likely Delay

Financial Industry Alert | December.03.2020

The Financial Conduct Authority (“FCA”), the UK regulator of LIBOR, announced several years ago that it would no longer compel panel banks to provide LIBOR quotes after December 31, 2021. The FCA also stated in March of this year that firms must assume that LIBOR will no longer be published after the end of 2021. Accordingly, there has been a clear expectation that LIBOR would no longer be available after the end of 2021. However, a series of announcements on Monday of this week suggest that there is likely to be a delay in the date for ending the publication of quotes for the most liquid USD LIBOR tenors.

On Monday, LIBOR’s administrator, ICE Benchmark Administration (“ICE”), announced that it is considering ceasing the publication of one week and two-month USD LIBOR settings at the end of December 2021, but that the publication of the remaining USD LIBOR settings (overnight and one, three, six and 12 month USD LIBOR) would cease at the end of June 2023. ICE said that it had “engaged with end-users, panel banks, the FCA and other official sector bodies regarding the potential for continuing certain widely-used USD LIBOR settings after December 31, 2021, where necessary to support transition.” ICE will commence a consultation for feedback in this regard in early December and will close the consultation by the end of January 2021.

The ICE announcement was welcomed by concurrent announcements by the FCA, the U.S. bank regulators, the Federal Reserve Board and the Alternative Reference Rates Committee (“ARRC”). Those concurrent announcements (linked below) explained that extending the publication of certain USD LIBOR tenors until June 30, 2023, would: allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions; encourage market participants to continue to work to convert legacy contracts or adopt robust fallbacks, and to reach agreement where feasible to transition away from LIBOR; and encourage banks to stop entering into new LIBOR-based contracts by the end of 2021.

A delay in the LIBOR transition would give market participants additional breathing room to evaluate the preferred path forward for new floating rate, non-LIBOR-based financings, as well as the opportunity to review and remediate existing LIBOR exposures in legacy contracts. (Additional background on LIBOR transition issues can be found here: Orrick LIBOR Alerts.)

Announcements