International: Cessation of USD Libor

23 Sept 2024    2 minute read

In brief

As of Monday 30 September 2024, all settings of the US Dollar (USD) London Interbank Offered Rate (LIBOR) will cease to be published. This marks the final step in the global transition away from LIBOR. The cessation follows an extended transition period, during which financial institutions, corporates, and regulators have moved away from USD LIBOR to alternative rates such as the Secured Overnight Financing Rate (SOFR).

Contents

Key developments 

  • Final cessation date: After 30 June 2023, the last remaining USD LIBOR tenors (1-month, 3-month and 6-month) were published using a synthetic methodology. However, 30 September 2024 marks the complete cessation of these remaining synthetic USD LIBOR rates. The UK Financial Conduct Authority has said it has no intention of using its powers to compel ICE Benchmark Administration Limited to continue to publish the settings beyond this date.
  • Transition to SOFR: The Secured Overnight Financing Rate (SOFR) has been established as the preferred alternative to USD LIBOR. Unlike LIBOR, SOFR is based on actual transactions in the overnight US Treasury repurchase (repo) market, making it more transparent and less susceptible to manipulation.
  • Impact on existing contracts: The cessation of USD LIBOR impacts any remaining contracts still referencing the rate. Many contracts have fallback provisions, which typically dictate how interest rates will be calculated in the absence of LIBOR; however these are not usually intended for long-term use. In most cases, the cessation of USD LIBOR will require documentation to be amended to switch to SOFR or another alternative rate. 

Next steps for clients

  • Review legacy contracts: Financial institutions and borrowers should review all contracts referencing USD LIBOR to ensure that, if not yet transitioned to an alternative rate, they have clear fallback language. 

  • Amend contracts where necessary: Contracts lacking robust fallback provisions should be amended immediately to avoid potential disruptions. Where the fallback option is not commercially desirable in the longer term, documentation will need to be amended promptly to switch to an alternative rate.

Conclusion 

The cessation of USD LIBOR marks a critical transition in global finance. We encourage all market participants to assess any residual exposure and take prompt action where needed to avoid any disruption after 30 September 2024.

If you have any questions or require assistance in reviewing or amending LIBOR-based contracts, please do not hesitate to contact our team.

Contact Information
Victoria Long
Of Counsel
Bahrain
Read my Bio
victoria.long@bakermckenzie.com

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