New USD LIBOR Benchmark Cessation Dates Announced

New USD LIBOR Benchmark Cessation Dates Announced

The ICE Benchmark Administration (IBA), the administrator of LIBOR, announced in November 2020 that it intends to cease publication of one-week and two-month United States dollar (USD) LIBOR benchmarks at the end of 2021 and cease the publication of the remaining benchmarks (one, three, six and 12 months) at the end of June 2023. This was a change from a previous announcement that it planned to discontinue publishing all LIBOR benchmarks by the end of 2021.

On March 5, 2021, regulators and industry groups globally provided market participants with much-anticipated clarity by announcing the dates for the cessation and publication of various tenors, which will allow market participants to identify the dates that their financial instruments and commercial agreements that reference LIBOR will transition to an alternative reference rate.

March 5 Announcement Sets Date and Spread Adjustments

The March 5 announcement is not only critical in providing certainty for the financial markets regarding timing for the replacement of LIBOR, but also necessary to fix the spread adjustment contemplated under certain industry-standard documents as of March 5, 2021. It provides greater clarity around the economic impact of the transition from LIBOR to a risk-free rate, like the Standard Overnight Financing Rate (SOFR). 

The spread adjustments are calculated based on the five-year historical median difference as of March 5 between the relevant USD LIBOR tenor and SOFR for the same period. The spread adjustments are not expected to change, and they are to be added to corresponding SOFR benchmark tenors.

For a review of the final SOFR spread adjustments corresponding to specific LIBOR tenors, refer to the table below.

U.S. to Require SOFR for New Contracts in 2022

The initial U.S. plan was to transition all USD LIBOR transactions to SOFR and have it administered by the Federal Reserve Bank of New York by the end of 2021. While a subset of LIBOR benchmarks will continue to be published, U.S. banking regulators indicated that LIBOR may no longer be used as a benchmark for new contracts signed after December 31, 2021.

For legacy contracts, the transition from LIBOR to SOFR is not required and LIBOR can be used until the cessation dates. Borrowers need to make sure their legacy LIBOR contracts have appropriate fallback language to replace LIBOR with SOFR at the applicable LIBOR cessation dates.

For more information on what this means for CFC members, watch a replay of CFC’s Extra Credit Educations Series webinar on “LIBOR Transition: What Cooperatives Should Know.” The replay is available on the CFC Member Website under Events & Training.  

Contact your CFC regional vice president if you have any questions.