March 25, 2020 - As a member of the Alternative Reference Rates Committee (ARRC) and Co-Chair of the ARRC’s Business Loans Working Group, the LSTA has received many inquiries on whether LIBOR cessation will be extended due to the Covid-19 crisis. The unfortunate answer is that, at this point, we still have to assume LIBOR cessation at the end of December 2021. Here’s why – and what the U.K. Financial Conduct Authority (“FCA”) had to say.
It’s important to remember that LIBOR exists because panel banks provide LIBOR submissions to the ICE Benchmark Association, which in turn uses those submissions to publish LIBOR rates in a number of currencies. While a number of banks do not like making LIBOR submissions, they have agreed to submit LIBOR through the end of 2021. (That is where the December 31, 2021 date comes from; it is not a regulatory fiat.)
So unless the LIBOR panel banks announce that they intend to submit LIBOR beyond December 31, 2021, we still must assume that LIBOR ends then.
The FCA posted a statement to that effect on March 25th. Specifically, the U.K. regulator states “[t]he central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed and should remain the target date for all firms to meet. The transition from LIBOR remains an essential task that will strengthen the global financial system. Many preparations for transition will be able to continue. There has, however, been an impact on the timing of some aspects of the transition programmes of many firms. Particularly in segments of the UK market that have made less progress in transition and are therefore still more reliant on LIBOR, such as the loan market, it is likely to affect some of the interim transition milestones.” On the last point (around loans), one U.K. interim milestone recommended that no sterling LIBOR issuances occur after the end of 3Q 2020. That had been viewed as challenging for loans; nonetheless, any potential change in such interim milestones still does not mean that LIBOR will continue past December 2021. Again, that is for the LIBOR panel banks to decide.
