LIBOR (the London Interbank Offered Rate) is scheduled to be phased out by the end of 2021, and the SEC is encouraging all companies—not just those in the banking industry—to assess their exposure to LIBOR and to appreciate the wide variety of consequences the discontinuation of LIBOR may have on their businesses. Ominously, a September 15 article in The Wall Street Journal reports that fewer than half of companies surveyed are confident they will be prepared for LIBOR’s demise.
The SEC has been calling attention to the issue since December 2018, when Chairman Jay Clayton identified the transition away from LIBOR as one of three market risks (together with Brexit and cybersecurity) the SEC would be monitoring in 2019. In July, the SEC Staff issued a statement emphasizing the importance of the issue for market participants of every type.
Chairman Clayton also raised the issue during a September 9 speech before the Economic Club of New York: “I will say again, market participants should assess their exposure to LIBOR and decide how to actively manage that risk, and they should ensure that any contracts that extend beyond 2021 either (i) reference LIBOR and have effective fallback language or (ii) do not reference LIBOR.”
Companies with existing contracts that have interest rate provisions referencing LIBOR and extend beyond 2021 should closely review the SEC Staff Statement on LIBOR Transition for a detailed discussion of various mitigation strategies and numerous potential disclosure obligations.