LIBOR Transition to SOFR in Credit Agreements

Go to: End of LIBOR | LIBOR Fallback Language | Amendment vs. Hardwired Approach | Documenting

Loans with SOFR | A Closer Look at SOFR | Looking Ahead

Maintained

This practice note describes the replacement of the London Interbank Offered Rate (LIBOR) as baseline reference

interest rate under credit agreements. It also discusses the primary replacement of LIBOR—the Secured Overnight

Financing Rate (SOFR)—and the advantages and disadvantages of this rate relative to LIBOR, along with the latest

developments related to the transition.

Some tenors of LIBOR were phased out at the end of 2021, with the remaining tenors to cease by June 30, 2023.

Lenders and borrowers with existing credit agreements and parties entering into new financings are asking their

lawyers how their financings address the loss of LIBOR. SOFR, a broad credit-risk measure, has emerged as the

frontrunner for replacing LIBOR. This practice note also looks at how SOFR is calculated. These are important

considerations in legacy deals and in new financings, as they face the loss of the loan market's primary pricing

mechanism.

For more on LIBOR, why it has fallen out of favor, and SOFR as its preferred successor, see Interest Rate

Provisions in Credit Agreements. For more on the amendment process, see Amendments, Consents, and Waivers

Resource Kit, Amendments and Lender Voting Right Issues in Credit Agreements, and Commitment Letter and

Term Sheet Provisions. For more specifically on the LIBOR transition and how to address this in your

documentation, see The Client Asks: What Happens When LIBOR Ends?, LIBOR Replacement Resource Kit,

LIBOR Replacement Clause (Hardwired), LIBOR Replacement Clause (Amendment), and Market Trends 2020/21:

LIBOR Succession Clauses.

Latest Developments: The latest updates from regulatory and advisory bodies on the transition away from LIBOR

include the following:

• On March 15, 2022, the Board of Governors of the Federal Reserve's Consolidated Appropriations Act, similar

to the New York legislation, provides that contracts with no fallback language will fallback to SOFR on the

first London banking day after June 30, 2023. For more discussion of this legislation, see Libor Transition

Measure Makes Way Into $1.5T Spending Bill - Law360.

• On December 31, 2021, most tenors of LIBOR (including sterling, euro, Japanese yen, swiss franc, and USD

one week and two month tenors) ceased to be published by the ICE Benchmark Association (IBA), with the

remaining tenors (including overnight, one, three, six, and twelve month USD LIBOR) continuing to be

published until June 30, 2023, solely for legacy contracts.

• On August 25, 2021, the Loan Syndications & Trading Association (LSTA) circulated a marked draft of its

Term SOFR Concept Document which the LSTA offered as an example of a Term SOFR referenced credit

agreement.

• On July 29, 2021, the Alternative Reference Rate Committee (ARRC) established by the Board of Governors

of the Federal Reserve System and the Federal Reserve Bank of New York (New York Fed) recommended

the CME Group's forward-looking Term SOFR, which has tenors similar to LIBOR and is the primary

fallback under hardwired approach succession clauses.

• On March 25, 2021, the New York State Legislature passed Senate Bill 297B/Assembly Bill 164B, which

provides a legislative fix for LIBOR legacy contracts. That is, the law contemplates that some contracts will

not properly address the cessation of LIBOR. This legislation provides mandatory fallbacks (such as using

SOFR as a replacement), while denying parties the right to repudiate contracts based solely on the

termination of LIBOR. This may serve as the model for similar federal legislation.

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LIBOR Transition to SOFR in Credit Agreements

• On March 25, 2021, the ARRC released an updated and simplified version of its fallback language using the

"hardwired" approach to LIBOR transitions. The new language abridges the existing fallback clauses by

incorporating the developments from the March 5 announcements; see the next bullet point). See LIBOR

Replacement Clause (Hardwired) and LIBOR Replacement Clause (Bilateral, Hardwired) for this abridged

language.

• On March 5, 2021, the U.K. Financial Conduct Authority (FCA) formally set the dates by which panel banks

will no longer report on tenors of LIBOR. These are the final dates the FCA will regulate LIBOR and the

IBA will publish LIBOR. If these dates remain unchanged, then all 35 tenors of LIBOR will cease after June

30, 2023. This could trigger a notice requirement under some credit agreements. For details, see FCA

Announcement May Trigger LIBOR Cessation Benchmark.

The ARRC is following a "paced transition plan for developing SOFR markets." For a status of that transition plan

and next steps see here. The ARRC released technical guidance for market participants transitioning to SOFR. The

paper, which covers trading and brokerage, client servicing, risk management, data management, operations, risk

controls, financial controls, compliance, and information technology, can be found here.

End of LIBOR

LIBOR (often referred to as the Eurodollar Rate in credit agreements) has been the baseline pricing mechanism in

loan agreements (and many other contractual arrangements for that matter). It was flexible and widely accepted,

being available for several maturities ranging from overnight to one year and was calculated in five currencies.

However, it is being replaced.

Following the LIBOR manipulation scandal of 2012, the responsibility for overseeing and administering LIBOR

passed from the British Bankers Association (BBA) to the IBA in 2014. The IBA attempted to continue to calculate

LIBOR in the same manner as it had been under the BBA to minimize the impact of this change on existing lenders

and borrowers. However, following the scandal, banks themselves no longer wanted to report LIBOR, for fear of

also becoming embroiled in LIBOR-related trouble. The FCA, the regulator overseeing LIBOR, said that it would no

longer require banks to provide LIBOR estimates at the end of 2021. Thus, beginning December 31, 2021, and

continuing through June 30, 2023, LIBOR is being phased out and will cease to be the predominant interest rate

benchmark. The question then was what would replace LIBOR as the reference rate in the hundreds of trillions of

dollars in contracts that use LIBOR. The FCA moved ahead with the transition as scheduled despite the challenges

posed by the COVID-19 pandemic.

To address this problem and find a replacement for LIBOR, in 2014, the Board of Governors of the Federal Reserve

System and the Federal Reserve Bank of New York (New York Fed) established the ARRC, comprising financial

institutions and banks, trade associations (such as the LSTA), and official sector members. The ARRC initially

recommended as an alternative rate the Broad Treasuries Financing Rate, which subsequently became known as

SOFR. SOFR has emerged as the frontrunner replacement for LIBOR, though other rates are being used as well

(including the Sterling Overnight Interbank Average (SONIA), backed by the Bank of England). The ARRC has also

turned its attentions to "cash markets"—that is, helping loan markets transition to a replacement rate.

LIBOR Fallback Language

Prior to December 31, 2021, credit agreements (and most other contracts) used LIBOR as the standard reference

interest rate, to which was added an applicable rate margin based on market conditions and the credit risk posed by

the borrower and the structure of the transaction. Where LIBOR could not be ascertained, most existing deals

would default to the alternate base rate (ABR) or prime rate. Borrowers universally preferred to borrow at the LIBOR

rate, which was significantly lower. Therefore, simply switching over to ABR or prime is not an ideal outcome. As

finance counsel, you may be asked to analyze a credit agreement to determine what happens now that LIBOR

cannot be determined and how the credit agreement could be amended to adjust to an alternative interest rate.

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LIBOR Transition to SOFR in Credit Agreements

The first thing to look for in your credit agreement is whether it has LIBOR fallback language, and if so, what kind of

language. Fallback language addresses what steps to take now that LIBOR has ceased to be an appropriate

reference rate. More recent credit agreements anticipated a LIBOR succession and included market standardized

language for a successor benchmark rate using either an amendment or hardwired approach.

If your credit agreement does not have LIBOR fallback language, it would likely have a general clause providing a

mechanism upon an inability to determine interest rates. The standard LIBOR market disruption clause seen in

credit agreements prior to 2018 would not be adequate to permanently handle switching from LIBOR to an

alternative interest rate. These LIBOR-disruption clauses require that the administrative agent and/or a certain

percentage of lenders determine that LIBOR is temporarily unavailable, is not able to be ascertained, or does not

adequately reflect the lenders' cost of funding. However, the fallback is simply to remove LIBOR as a permitted

interest rate under the credit agreement. That leaves ABR as the only option, and, as noted above, this is more

expensive than LIBOR. Therefore, credit agreements with this type of general clause must be amended to provide a

new interest rate. For more on general clauses that could govern the inability to determine LIBOR absent a specific

LIBOR succession clause, see Yield Protection Clauses in Credit Agreements and Commitments and Credit

Extensions Clauses (Credit Agreement).

Amendment vs. Hardwired Approach

The actions to take following December 31, 2021, with respect to an existing credit agreement using LIBOR as a

benchmark, depend largely on the type of LIBOR succession clause that may be contained in the agreement. The

standardized succession clauses recommended by the ARRC leading up to LIBOR cessation can broadly be

categorized into two types of clauses. One uses the "amendment" approach, which provides a framework for the

transition but requires an amendment to effectuate that transition. This type of provision initially was used prior to

the selection of a preferred replacement for LIBOR. Once the ARRC determined that SOFR would be the choice for

LIBOR replacement, the ARRC recommended a "hardwired" succession clause that does not require a substantive

amendment. The hardwired approach provides a waterfall of automatic benchmark rate options with SOFR as the

first choice, if available, and if not, the hardwired clause takes an amendment approach to the replacement

benchmark rate.

The amendment approach does not reference SOFR (or any other specific replacement rate). The amendment

clauses vary in the ways they implement an amendment for LIBOR replacement—and most importantly the degree

of lender consent necessary. Most credit agreements using amendment approach LIBOR replacement clauses

required only the negative consent of required lenders. That is, the amendment would be blocked only if more than

a majority of lenders specifically notified the administrative agent of their opposition. Otherwise, the replacement

amendment's implementation would be automatic.

A small number of these types of succession clauses required no consent at all. An even smaller number required

affirmative consent of a majority of lenders, which is disadvantageous to the borrower, particularly in widely

syndicated deals.

Both amendment and hardwired clauses, typically include catch-all language to permit general changes throughout

the credit agreement to avoid inconsistencies brought on by a change in benchmark rate. For example, some

recently publicly filed credit agreements include the defined term "LIBOR Successor Rate Conforming Changes."

These are conforming revisions and are generally defined broadly as:

Any conforming changes to the definition of Base Rate, Interest Period, timing and frequency of determining

rates and making payments of interest and other administrative matters as may be appropriate, in the

discretion of the Administrative Agent, to reflect the adoption of such LIBOR Successor Rate and to permit the

administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or,

if the Administrative Agent determines that adoption of any portion of such market practice is not

administratively feasible or that no market practice for the administration of such LIBOR Successor Rate exists,

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LIBOR Transition to SOFR in Credit Agreements

in such other manner of administration as the Administrative Agent determines in consultation with the

Borrower).

The advantage of the hardwired approach is certainty. While the amendment approach is streamlined, the business

terms of the amendment are still subject to negotiation (such as the exact credit spread adjustment). In reviewing

an existing credit agreement, identify which type of LIBOR succession provision it contains and what level of lender

consent may be required. The following aspects of succession language factor into determining the applicable

replacement rate.

Triggering Event

The trigger to replace LIBOR in the credit agreement was largely the same regardless of whether the fallback

clause used the hardwired or amendment approach. The trigger describes the event that forces or allows the

hardwired mechanism or amendment to take effect. The March 5, 2021, announcement by the IBA and FCA that all

LIBOR settings would cease to be provided by an administrator or would no longer be representative almost

universally constituted a triggering event pursuant to most LIBOR succession language. Although some common

USD LIBOR tenors continue after December 31, 2021, until June 30, 2023, U.S. bank regulators view the use of

LIBOR in new contracts after December 31, 2021, as a safety and soundness issue. According to the ARRC, the

March 5, 2021, announcement was a benchmark transition event for all LIBOR tenors under its recommended

transition clauses.

You should determine in the credit agreement who determines the occurrence of the trigger and whether they have

a responsibility to provide notice. Generally, in syndicated loans, the administrative agent may make this

determination on its own. However, the borrower or the required lenders may also be given the right to notify the

administrative agent of the occurrence of such trigger. For bilateral loans, this determination is made by the lender.

The LSTA has offered a generic form notice that may be adapted by an administrative agent or lender for this

purpose. Some amendments include a statement of the March 5, 2021, IBA and FCA announcement as notice of

the triggering event for LIBOR succession to be acknowledged as part of the amendment.

Replacement Rate

The fallback clause should also refer to which rate is replacing LIBOR. Currently, SOFR has been the frontrunner

for the replacement rate. The LIBOR succession clause should set forth, either generally or specifically, the

parameters that constitute the "benchmark replacement" (defined term). This may be as simple as defining it as an

"alternate benchmark rate," along with any credit spread adjustments (see below).

The ARRC suggested a waterfall to select a replacement rate on the benchmark replacement date, which was

included or amended into many existing credit agreements. The most desirable replacement comes first in the

waterfall, and if it is not available, the next rate in the waterfall is looked at for the replacement. In ARRC-

recommended benchmark replacement clauses, the forward-looking Term SOFR that is available for various term

maturities similar to LIBOR is at the top of the waterfall. If Term SOFR of the appropriate interest period is not

available, the clause may require the administrative agent to look to "next available Term SOFR," which would be

the closest match the administrative agent can make to the interest period available for LIBOR. This would

essentially look to the next-shortest period available. If Term SOFR is unavailable, the second step on this

suggested waterfall would use the "daily simple SOFR" rate to extrapolate a rate over the coming interest period

(i.e., in advance) or would use the SOFR at the end of the period and look backward to arrive at a rate applicable

for that term (i.e., in arrears). Finally, if neither of these works, for syndicated loans, the hardwired approach

defaults to a streamlined amendment process to agree on a replacement rate. Through this analysis of the

benchmark transition in the credit agreement, the parties should now have a replacement rate following December

31, 2021.

For bilateral loans, the lender typically selects the replacement rate. In more borrower-friendly bilateral transactions,

the borrower may have a negative consent right with respect to the lender's determination (i.e., the borrower is

given a certain number of days (5 or 10 business days) in which to object to the lender's determination). In either

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LIBOR Transition to SOFR in Credit Agreements

case, an amendment with the appropriate level of consent should be completed to reflect the replacement rate in

effect for such credit agreements.

Credit Spread Adjustment

The steps in a replacement rate waterfall typically rely heavily on a credit spread adjustment to smooth out the

differences between LIBOR and SOFR. That is, the LIBOR succession language factors in that LIBOR and SOFR

are based on different underlying credit measurements. As noted, LIBOR is a bank's estimate of its cost of funding

at various maturities while SOFR is a risk-free rate, representing an overnight rate secured rate. For that reason,

LIBOR is generally expected to be higher than SOFR, though in times of credit stress, the reverse is true. In fact,

during early January 2018, the SOFR quote was higher than LIBOR. This means that a credit spread adjustment is

necessary to make the two rates interchangeable for purposes of pricing loans, and the ARRC recommends

including such an adjustment to minimize valuation changes.

The credit spread adjustment will be either dynamic (i.e., a variable conversion that incorporates swings in credit

risk) or static (i.e., a single unchanging formula). The ARRC in April 2020 recommended a methodology for

determining a static spread adjustment, intended to minimize the change in value in transitioning from LIBOR to

SOFR in cash products. The ARRC methodology is "based on a historical median over a five-year lookback period."

This methodology matches that recommended by the International Swaps and Derivatives Association (ISDA).

Many LIBOR transition clauses included the ARRC recommended spread adjustment. Other agreements may be

less specific and simply define an alternate benchmark rate to include "any mathematical or other adjustments to

the benchmark (if any) incorporated therein."

Hardwired clauses typically include a static spread, calculated when the replacement benchmark is selected. As

with the replacement rate itself, the ARRC has prioritized the spread options. The first priority is a spread

adjustment endorsed by a relevant governmental body, such as the ARRC. Next is to use a spread adjustment

found in similar products, such as for derivatives as endorsed by the ISDA Master Agreement: A Practical Guide,

though—as noted—the ARRC is currently tracking the same spread adjustments. Finally, as with the final option for

the replacement rate, if neither of those options is available, the last step is to enter a streamlined amendment

process.

The spread adjustment is ultimately agreed-upon by the borrower and the administrative agent based on standard

market provisions and recommendations by governmental authorities and groups like the ARRC (for both hardwired

and amendment clauses). For example, a publicly filed credit agreement accepts a spread adjustment so long as

"the Federal Reserve Bank or the Alternative Reference Rates Committee convened by the Federal Reserve

System and the Federal Reserve Bank has published a recommended spread adjustment for using the Alternative

Base Rate as a successor or alternative to LIBOR."

It is also critical for the administrative agent's institution to have the operational capability to calculate the successor

interest rate, applicable margins, and any type of credit spread adjustment agreed to by the parties. For more

discussion on spread adjustments, see Determining Spread Adjustments for SOFR Loans.

Documenting Loans with SOFR

The prior section discussed reviewing existing credit agreements for LIBOR succession provisions and the types of

such provisions you may find in your review. If the LIBOR succession language requires an amendment or if there

is no specific LIBOR succession provision and an amendment is necessary, you need to determine the percentage

of lender vote required. Bilateral deals, between one lender and one borrower, should not present a challenge here.

Widely syndicated loans will be more difficult, perhaps prohibitively challenging, with some credit agreements

requiring a unanimous vote for any amendments that change the interest rates. That may be a deal-breaker both

because of its practicality and cost. See Amendments, Consents, and Waivers Resource Kit and Amendments and

Lender Voting Right Issues in Credit Agreements. This analysis may help determine if an amendment may be done

in a cost effective manner.

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LIBOR Transition to SOFR in Credit Agreements

For new deals and deals that require a refinancing or more extensive amendment and restatement, the LSTA has

offered concept credit agreements that use SOFR as the benchmark rate. On July 13, 2020, the LSTA circulated to

its Primary Market Committee a final draft of its concept credit agreement (the LSTA Credit Agreement) describing

a term loan referencing daily simple SOFR or daily compounded SOFR. See LSTA Releases Final Draft of Simple

SOFR Concept Credit Agreement and SOFR Loan Documentation: 8 Things for Borrowers to Think About. On

August 25, 2021, the LSTA circulated a marked draft of its Term SOFR Concept Document which the LSTA offered

as an example of a Term SOFR referenced credit agreement. These LSTA Concept Credit Agreements may be a

starting point in drafting a new or amended and restated credit agreement with SOFR or Term SOFR as the

benchmark.

In addition to updated interest rate provisions and definitions relating to SOFR, notable provisions in new credit

agreements include updated interest rate succession language and a non-liability clause for the administrative

agent. The interest rate succession language in a new SOFR-based credit agreement is still important in the event

of the cessation of SOFR or the replacement rate for some reason. These interest succession provisions tend to

have a waterfall from SOFR to Term SOFR to another manner of determining a replacement benchmark. New

credit agreements also include that the administrative agent does not have liability for the interest rate calculations

or any matters relating to the interest rate. This gives the administrative agent some protection in the transition to

SOFR.

A Closer Look at SOFR

In 2014, the ARRC set out to find an alternative reference rate to LIBOR and best practices for contract robustness

and plans to adopt and implement an alternative rate. It initially recommended as an alternative rate the Broad

Treasuries Financing Rate, which subsequently became known as SOFR. In this section, we will take a closer look

at this replacement rate.

Enter SOFR

SOFR is based on several risk measurements for the purchase and resale of U.S. Treasury under repurchase

agreements (as described below). As a secured rate, it cannot replace the unsecured LIBOR directly, as the SOFR

rate on any day is lower than LIBOR. Borrowers and lenders would have to determine an appropriate conversion

mechanism.

The New York Fed began publishing quotes of the SOFR rate in April 2018. SOFR measures the cost of borrowing

cash overnight backed by U.S. Treasury securities as collateral. It is a benchmark rate that incorporates trading

data from three risk-free reference overnight repurchase (repo) rates. In a repo agreement, a dealer (or borrower)

sells a government security to investors and buys them back at an agreed-on higher price at a later date (in this

case, the next day). The difference between the selling price and the repurchase price (i.e., the discount) is the

basis of the repo rate and is the same as an interest rate. Treasuries can be traded through repos in three ways:

• Tri-party repo, which uses a clearing bank as a go-between for a specific buyer and seller

• General Collateral Financing (GCF) repos are like tri-party repos but are traded on exchanges, with

transactions between anonymous buyers and sellers (i.e., they are blind brokered) settled on the clearing

banks' platforms

• Bilateral repos are direct transactions between buyers and sellers. These do not use third parties such as

clearing houses, but they may be cleared through the Delivery-Versus-Payment (DVP) service offered by

the Fixed Income Clearing Corporation (FICC)

The New York Fed has included all three of these types of repo transactions in its calculation of SOFR. SOFR is

calculated as a volume-weighted median of transaction-level tri-party repo data collected from the Bank of New

York Mellon as well as transaction data and data on bilateral U.S. Treasury repo transactions cleared through DVP,

which are obtained from DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation (DTCC).

The New York Fed also includes in SOFR data from its Broad General Collateral Rate (a tri-party GCF rate). The

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FICC acts as a central counterparty for GCF and bilateral repos. Removed from these calculations are transactions

the New York Fed refers to as "specials," or specific-issue collateral. These specials trade at cash-lending rates

(i.e., rates lower than those for general collateral repos); cash providers accept this lower yield, so they can obtain a

particular security.

The New York Fed publishes the result of this calculation, SOFR, on its website at about 8 a.m. New York time

each business day. That can be found here. In addition, Term SOFR, the forward-looking interest rates published

by CME Group for one, three, six, and twelve month tenors, is available each day. Financial institutions typically

access Term SOFR through a license with CME Group.

Differences between LIBOR and SOFR

SOFR differs from LIBOR in that there is a far higher volume of SOFR-based trading and in the underlying nature of

the rate itself. Higher volume generally makes SOFR safer from manipulation than LIBOR. For example, just after

the New York Fed began quoting the SOFR rate, $754 billion in daily trading volume made up SOFR, as opposed

to $500 million in three-month LIBOR, according to the ARRC. Thus, a very large number of contracts based on

LIBOR (see below) are derived from a relatively small amount of underlying trades—making LIBOR susceptible to

manipulation. The relative weakness of LIBOR was exacerbated by the financial crisis and subsequent LIBOR

scandal, when banks drastically limited (in fact, nearly eliminated) reporting LIBOR. SOFR is based on data from far

more trades than is LIBOR, ideally making it a more accurate measure of the cost of credit.

LIBOR and SOFR themselves are based on different metrics as well. The most significant difference between

LIBOR and SOFR is that LIBOR is an unsecured rate and represents banks' estimates as to their cost of funds (see

Interest Rate Provisions in Credit Agreements). SOFR meanwhile is a secured, risk-free rate. Thus, LIBOR

arguably reflects banks' costs of funding more accurately than SOFR. On the other hand, the calculation of LIBOR

was opaque, based on polling of certain banks. The calculation of SOFR is more transparent, based on market

data. In addition, because of the size of the SOFR market and the different components that go into its calculation

(see above), the ARRC concluded that SOFR does reflect the economic cost of lending and borrowing relevant to a

wide array of market participants.

In addition, LIBOR quotes are available for deposits with several different maturities (interest periods), from

overnight to one year. At its launch in April 2018, SOFR lacked a term reference rate, being limited only to an

overnight rate (the ARRC was unable to find a term rate like LIBOR that otherwise met its criteria for a replacement

rate). Subsequently, the ARRC published an indicative three-month SOFR rate. Otherwise, issuers selling bonds

tied to SOFR were making do with the overnight rate. That is, a term interest rate was derived from extrapolating

from the daily SOFR rate (i.e., an average daily rate). The disadvantage of such extrapolation is that the parties did

not know the final rate at the start of the interest period, as is the case with LIBOR. However, SOFR has began

trading on futures markets, and this allowed for the calculation of true term rates. On July 29, 2021, the ARRC

recommended the CME Group's forward-looking Term SOFR, which has tenors similar to LIBOR. This is one of the

final steps in the ARRC's "paced transition plan."

The differences between LIBOR and SOFR are most essentially represented in the underlying rates themselves.

For that reason, you cannot simply amend a credit agreement to replace LIBOR with SOFR. For example, on

January 3, 2018, the overnight LIBOR rate was 2.39188% and SOFR was 2.7%. However, at most other points in

the cycle, SOFR has been lower than LIBOR, and the overnight rate for LIBOR is not the most representative of

LIBOR measurements. In any event, some credit adjustments to the spread must be made to account for the

difference rates (see "Credit Spread Adjustment," above).

Looking Ahead

You should continue to monitor developments as SOFR is now the primary replacement for LIBOR. Loan

agreements are now switched to or originated using SOFR or another replacement rate for LIBOR, and derivatives

will make the switch upon the permanent discontinuance of LIBOR. The ARRC has strong advice on the need to

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LIBOR Transition to SOFR in Credit Agreements

keep abreast of updates in this space: "Contract language should contemplate additional disruptions and attempt to

be future proof, including by addressing the potential cessation of the replacement rate."

Finally, certain other endeavors are under way to ease the pain of amending loan documentation en masse. This

includes tax guidance that a LIBOR amendment does not constitute a taxable event. In addition, the Financial

Accounting Standards Board has issued guidance that the transition away from LIBOR would not be deemed to be

the incurrence of new loans for accounting purposes.

Practitioners should keep abreast of these changes, as they will have an impact on many existing credit

agreements and on new deals.

Current as of: 03/28/2022

End of Document