End of LIBOR is Here

The London Interbank Offering Rate (commonly known as LIBOR) has been a key benchmark for setting the interest rates charged on adjustable rate loans, mortgages and corporate debt for the last 40 years. Due to concerns that the benchmark was being manipulated, LIBOR has been phased out over the last few years. Effective June 30, 2023, the publication of LIBOR has ceased. LIBOR has generally been replaced by the Secured Overnight Financing Rate (SOFR), which experts consider a more accurate and secure pricing benchmark. 

The cessation of LIBOR and move to SOFR has implications to lending arrangements. In anticipation of the phasing out of LIBOR, may loan agreements have provisions to deal with this eventuality. These provisions may provide that any necessary changes to the loan agreement resulting from a replacement of a benchmark rate, such as LIBOR, may be completed by the lender without borrower approval. Some loan agreements may not contain such provisions and changes relating to the discontinuation of LIBOR may require the approval of both lender and borrower.  

While it may be case that you have already been approached by your lender in connection with the discontinuance of LIBOR and have started or completed the process of amending any loan agreement or other financing document, there are some steps that can be taken if your lender has not addressed this matter with you.  

First, review all loan documentation to determine (a) whether LIBOR is referenced, (b) whether rate replacement language (such as to SOFR) is included in the loan agreement, (c) the scope of any necessary amendments to the loan agreement and whether you agree with these amendments, and (d) the consent and approval levels required by you with respect to any amendments.  

Companies may also need to undertake an analysis of its other banking arrangements to determine whether those arrangements are impacted by the discontinuation of LIBOR. If changes are required, companies will need to address how such changes are to be implemented.    

It is important that you review any current lending arrangement now to ascertain whether LIBOR is used as a benchmark, and if so, whether the loan agreement contemplates a replacement benchmark such as SOFR to ensure that the legal documentation reflects this important milestone.  

If you need assistance in this review and evaluation, Tom Johnson or your attorneys at BrownWinick will be happy to assist.