It’s difficult to say where LIBOR transition stands. When we first mentioned the discontinuation of LIBOR some time ago, we thought that by now (with 2021 rapidly approaching) we’d know where we stood.
Sadly, there is no simple alternative to LIBOR as a benchmark interest rate for syndicated loans. But in the spirit of facilitating awareness, the Loan Market Association (LMA) has recently published exposure drafts of (i) a compounded SONIA-based sterling term and revolving facilities agreement and (ii) a compounded SOFR-based dollar term and revolving facilities agreement.
In addition, the LMA has also published an exposure draft of a reference rate selection agreement, designed to streamline the process of the transition to alternative reference rate(s) across different transactions. The draft agreement allows the parties to agree the applicable reference rates for use when calculating the interest due under a facility agreement which is assumed to be based on a standard LMA form).
It remains for market participants to determine which benchmark rate to use, on a case-by-case, but at least these drafts provide a useful starting point to flush out potential issues and options for those contemplating a life away from LIBOR.
As ever, thank you to the LMA – where would we be without it? We would encourage our lending readers to consider the transition away from LIBOR well ahead of 2021 and what it might mean for them in terms of systems and practices.
Matthew Padian