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Summary

Last Friday, the IBA published its Feedback Statement on Consultation on Potential Cessation.

The relevant dates regarding cessation are the same in the November request for comment – i.e., all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

• immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and,
• immediately after 30 June 2023, in the case of the remaining US dollar settings.

Impact:

Maybe the biggest impact of this statement is the fact that this will constitute an Index Cessation Event under swaps and Benchmark Transition Event under credit agreements using the ARRC suggested language (or variation thereof). This DOES NOT mean that a significant amount of LIBOR agreements will now transfer to SOFR (or other reference rate for non-USD transactions). Instead, it means that the amount of the spread adjustment has been confirmed/crystallized as of March 5, 2021. ISDA confirmed this in its Press Statement HERE. It should be noted that ISDA’s statement only relates to swaps updated to have incorporated the IBOR Fallbacks Supplement, but it is a similar outcome for USD credit agreements utilizing the ARRC Fallback Language. Immediately after the December 31, 2021 and June 30, 2023 dates are the dates that we can expect fallback language to transition a LIBOR contract to a new reference rate.

What is the spread adjustment amount?

Bloomberg publishes rates on a delayed basis (where you can see both the spread and the all-in “Fallback Rate”). Separately, Bloomberg published a Technical Notice to confirm all the final spread adjustments. For three of the more common USD LIBOR tenors the final spreads are:

• 0.11448% for 1M LIBOR;
• 0.26161% for 3M LIBOR; and,
• 0.42826% for 6M LIBOR.

Related Information:

Concurrent with this statement, the FCA published its statement on the cessation and loss of representativeness of LIBOR.