LIBOR Cessation Dates Announced
Financial markets and market participants, including asset managers, among others, now have greater clarity on the timeline for transitioning away from LIBOR, the critically important and globally used benchmark and reference rate. On March 5, 2021, ICE Benchmark Administration (IBA), which administers LIBOR, announced that it will permanently cease to publish LIBOR beginning on January 1, 2022 for most LIBOR settings. Publication of the overnight and 12-month US dollar LIBOR settings will cease beginning on July 1, 2023. The UK’s Financial Conduct Authority, IBA’s regulator, promptly confirmed the IBA’s statement in its own announcement on the same date. The FCA also indicated that it will consult with the IBA regarding the continued publication of certain “synthetic” LIBOR settings intended primarily to allow LIBOR transactions in affected currencies to mature. The FCA announcement made clear that these LIBOR settings “will no longer be representative of the underlying market and economic reality” after the cessation dates announced by the IBA.
New York State Legislature Passes LIBOR Legislation
On March 24, 2021, the State of New York approved legislation that will be crucial in minimizing legal uncertainty and adverse economic impacts associated with the LIBOR transition, providing greater certainty to market participants as the financial system continues its move away from LIBOR. Many financial instruments referencing LIBOR do not envision a permanent or indefinite cessation of LIBOR. Certain “tough legacy” instruments either do not have fallback terms and conditions that adequately address a permanent LIBOR cessation, or have terms and conditions that could dramatically alter the economics of contract terms if LIBOR is permanently discontinued. Although existing contracts may be amended, such an amendment process might be challenging, if not impossible, for certain products. Senate Bill 297B/Assembly Bill 164B addresses those legacy contracts that mature after the mid-2023 cessation date of LIBOR that lack effective fallbacks. Because New York law governs many of the financial products and agreements referencing LIBOR, the new legislation will provide legal clarity for these instruments, and will reduce the burden on New York courts, as legal uncertainty surrounding the transition likely would have prompted disputes.