Asia

An extended end-June 2023 cessation date for most USD LIBOR tenors? IBA announcement on consultation

By Davide Barzilai (UK), Colin Rice (SG), David Milligan (Hong Kong) and Sophy Teng (SG) on December 1, 2020 Posted in Asia, Financial Services

Yesterday, the ICE Benchmark Administration (IBA) which compiles and oversees LIBOR, announced its impending consultation on what it is effectively a proposed extension of most (and the more widely used) US dollar (USD) LIBOR tenors until 30 June 2023. This is hugely significant for the markets in Asia where USD is by far the most prevalent and predominant LIBOR currency for cash products in the region.

The consultation would include IBA’s proposal:

to cease the publication of the one-week and two-month USD LIBOR settings following the LIBOR publication on 31 December 2021.
to extend publication of the other remaining LIBOR tenors (i.e. the more widely used of overnight, one, three, six and twelve-month USD LIBOR) until 30 June 2023.

This is in recognition of the time needed for the market to deal with legacy transactions. However, IBA emphasised that any publication of the relevant USD LIBOR settings based on panel bank submissions beyond 31 December 2021 will need to comply with applicable regulations, including as to representativeness.

IBA’s plans are based on feedback and information received from panel banks and also reflect its discussions with the UK FCA and other official sector bodies. The UK FCA and the US Banking Regulators have issued statements and expressed support for IBA’s announcement.

Depending on the outcome of the consultation, if the proposal proceeds, it will impact transition milestone dates for USD LIBOR deals. This development will also be relevant to negotiations on deals, particularly multi-currency facilities agreements – interim documentation such as the “Replacement of Screen Rate” clause dealing with LIBOR transition to date, are currently premised on an end-December 2021 cessation date for all LIBOR currencies.

Whilst this proposal would give parties reprieve and additional time for the remediation of legacy USD LIBOR cash products, the regulators do emphasise that parties should still continue with their transition efforts whilst monitoring these developments.

IBA expects the consultation to commence in early December 2020 and to close by end of January 2021.

Please reach out to your Norton Rose Fulbright contact if you’d like to further discuss this. Here is the link to our dedicated IBOR page for more IBOR news and our videos.