LIBOR Transition: Likely Delay

Financial Industry Alert
December.03.2020

The Financial Conduct Authority (“FCA”), the UK regulator of LIBOR, announced several years ago that it would no longer compel panel banks to provide LIBOR quotes after December 31, 2021. The FCA also stated in March of this year that firms must assume that LIBOR will no longer be published after the end of 2021. Accordingly, there has been a clear expectation that LIBOR would no longer be available after the end of 2021. However, a series of announcements on Monday of this week suggest that there is likely to be a delay in the date for ending the publication of quotes for the most liquid USD LIBOR tenors.

On Monday, LIBOR’s administrator, ICE Benchmark Administration (“ICE”), announced that it is considering ceasing the publication of one week and two-month USD LIBOR settings at the end of December 2021, but that the publication of the remaining USD LIBOR settings (overnight and one, three, six and 12 month USD LIBOR) would cease at the end of June 2023. ICE said that it had “engaged with end-users, panel banks, the FCA and other official sector bodies regarding the potential for continuing certain widely-used USD LIBOR settings after December 31, 2021, where necessary to support transition.” ICE will commence a consultation for feedback in this regard in early December and will close the consultation by the end of January 2021.

The ICE announcement was welcomed by concurrent announcements by the FCA, the U.S. bank regulators, the Federal Reserve Board and the Alternative Reference Rates Committee (“ARRC”). Those concurrent announcements (linked below) explained that extending the publication of certain USD LIBOR tenors until June 30, 2023, would: allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions; encourage market participants to continue to work to convert legacy contracts or adopt robust fallbacks, and to reach agreement where feasible to transition away from LIBOR; and encourage banks to stop entering into new LIBOR-based contracts by the end of 2021.

A delay in the LIBOR transition would give market participants additional breathing room to evaluate the preferred path forward for new floating rate, non-LIBOR-based financings, as well as the opportunity to review and remediate existing LIBOR exposures in legacy contracts. (Additional background on LIBOR transition issues can be found here: Orrick LIBOR Alerts.)

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Nikiforos Mathews Partner, Derivatives, Structured Finance

New York

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D:+1 212 506 5257
E: [email protected]

Practice:

Finance Sector
Derivatives
Structured Finance
Energy
Infrastructure

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Nikiforos Mathews Partner

New York

His practice focuses on representing financial institutions, governmental and regulated entities, hedge funds and corporate end-users in developing, structuring and negotiating a broad range of fixed income, foreign exchange, commodity, energy and credit derivative products. Among other things, he has successfully negotiated numerous domestic and cross-border lien-secured hedging transactions relating to leveraged loans and infrastructure transactions, as well as deal-contingent hedges. In addition, Nik has significant experience in foreign exchange and fixed income prime brokerage issues, as well as various structured products. He also regularly advises clients in connection with derivatives regulation, including the application of the Dodd-Frank legislation and related regulations. Also, Nik provides counsel on close-out netting matters and UCC issues relating account control arrangements for collateral. Nik regularly advises on the structuring and negotiation of energy and commodity hedging transactions, as well as swap regulatory matters relating to VPPAs. Moreover, on a regular basis, Nik represents market participants on the termination and close-out of derivatives and other products, including providing advice on related bankruptcy matters.

Nik is lead editor of Orrick’s publication, Derivatives in Review, which periodically highlights important legal, regulatory and other newsworthy developments in the area of derivatives. He has also published articles in several journals, including on rating agency hedge criteria in connection with structured finance transactions.

Before joining Orrick, Nik was vice president and assistant general counsel at Goldman, Sachs & Co. and director and counsel at UBS AG. He also served as a law clerk to the Honorable Nicholas Tsoucalas of the United States Court of International Trade.

From 1999 to 2007, Nik held a commission as a Captain in the United States Army Reserve, where he was qualified to practice as a Judge Advocate. A veteran of both Operations Iraqi Freedom and Enduring Freedom, he served as an Operational and Administrative Law attorney in Kuwait, Iraq and Afghanistan.