As of February 1, 2014, the British Bankers Association handed over administration of the London Interbank Offered Rate (LIBOR) to The Intercontinental Exchange Benchmark Administration Ltd (IBA), which is part of the Intercontinental Exchange Group, Inc. (ICE). This change in LIBOR’s administration comes on the heels of concerns that certain banks were manipulating LIBOR by submitting inaccurate rate information in order to appear more creditworthy. According to the IBA website, “there shall be no changes to the manner in which the rate is calculated or data collection methodologies at the time of the transition.” For more information about IBA and the transition of LIBOR administration from BBA to IBA, click here.
Here is what the change in LIBOR administration means for your bank:
- Form loan documents that contain references to BBA LIBOR should be updated to refer to “ICE LIBOR” or to another source for determining the applicable rate, e.g. Reuters, Bloomberg or The Wall Street Journal.
- Existing loan documents that contain references to BBA LIBOR should be reviewed to determine whether the reference to BBA includes or contemplates successors to BBA. If they do not contemplate successors, then you may consider amending those documents as suggested in the prior bullet point. If the documents do contemplate successors to BBA, then you may want to wait until you amend or restate the loan documents for other reasons to clean up references to BBA LIBOR.
- Form loan documents should be reviewed to ensure that that they contain “market disruption clauses” to ensure that if LIBOR is no longer published, or does not adequately and fairly reflect the cost to the bank of maintaining the loan, the lender may specify an alternative index to serve as the basis for the interest rate.