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The London interbank offered rate, or LIBOR, has been called the world’s most important number. Quoted daily across five currencies and seven maturities, the rate underpins hundreds of trillions of dollars in contracts around the world from home mortgage loans to complex derivatives. For U.S. dollar (USD) LIBOR alone, the estimated exposure is approximately $200 trillion. 

The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have issued supervisory guidance  encouraging banks to “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021,” noting that new USD LIBOR issuance after 2021 would create safety and soundness risks.

CREFC serves as a member of the Alternative Reference Rates Committee (ARRC), a group of private-market participants convened by the Federal Reserve Board and Federal Reserve Bank of New York. In addition, CREFC co-chairs the ARRC’s Securitizations Working Group (SWG) with the Structured Finance Association (SFA). We are focused on helping the CRE finance industry learn about the transition from LIBOR and serving as a platform to create a constructive dialogue on the challenges our industry faces during this critical period of change. 
 
For any questions or if you would like to be involved in a CREFC working group on the LIBOR transition, please feel free to reach out to Raj AidasaniLisa Pendergast or Sairah Burki.

Latest News

News

Federal Reserve Releases Proposal to Implement Federal LIBOR Legislation

August 1, 2022

On July 19, the Federal Reserve Board (the “Board”) issued a press release inviting comment on a proposal related to the Adjustable Interest Rate (LIBOR) Act, which Congress passed on March 15, 2022.

This important implementation proposal:

  • Addresses LIBOR contracts governed by U.S. law that remain outstanding after the planned cessation of LIBOR on June 30, 2023, and

  • Directs the Board to publish the regulations (the “proposal” or the “proposed rule”) required for its successful implementation.

What Is the Fed Asking?
The Fed seeks input on a proposal that provides default rules for certain contracts that use the LIBOR reference rate. In effect, the proposed rule would establish benchmark replacements for contracts that reference LIBOR and that do not have terms that provide for the use of a clearly defined and practicable replacement rate following the first London banking day after June 30, 2023 (the “LIBOR replacement date”).

Comments on the Board’s proposal are due August 29, 2022. However, it should be noted that the law directs the Board to promulgate regulations not later than 180 days after the date of enactment (or September 11, 2022). As a result, the final rule's effective date should be well before the LIBOR replacement date.

Legacy Contracts and the LIBOR Act
On the LIBOR replacement date, the proposal will replace references to LIBOR in “covered contracts” with a Board-selected rate which, as required by the law, will be based on the Secured Overnight Financing Rate (SOFR). The proposal defines “covered contract” to mean a LIBOR contract that has one of the following characteristics as of the LIBOR replacement date:

  1. Contains no fallback provisions;

  2. Has fallback provisions that identify neither a specific benchmark replacement nor a determining person; or

  3. Identifies a determining person, but the determining person fails to select a benchmark replacement.

The proposal further clarifies that a covered contract would not include any LIBOR contract that the parties have agreed in writing shall not be subject to the LIBOR Act.

Board-Selected Replacement Rates
The Board-selected benchmark replacements for the various types of covered contracts are identified in the table below.

Critically, the law also authorized the Board to require any “additional technical, administrative, or operational changes, alterations, or modifications to LIBOR contracts” (i.e., “conforming changes”) to aid in the implementation of the Board-selected benchmark replacement rates. However, the proposal states that the Board “does not believe any additional conforming changes would be needed for successful implementation of the Board-selected benchmark replacements” but that it reserves the authority, in its discretion, to “require any additional conforming changes, by regulation or order.”

This Is Important; CREFC Wants to Hear from You…
The Board indicates that, if finalized, the proposed rule will become effective on “the first day of the next calendar quarter that begins 30 days after publication of the final rule in the Federal Register.” The Board invites comments on all aspects of the proposed rule and, in addition, specific questions, including:

  • What, if any, alternative SOFR-based benchmark replacements should the Board consider for covered GSE contracts instead of 30-day Average SOFR, such as SOFR term rates?

  • Should the Board identify a single Board-selected benchmark replacement for all covered contracts?

  • What, if any, additional clarifications should the Board consider regarding the Board-selected benchmark replacements?

  • What, if any, benchmark replacement conforming changes should the Board consider?

CREFC welcomes your feedback on the proposal, and for any questions or comments, please contact Raj Aidasani or Lisa Pendergast. CREFC and other trade associations will respond to the Fed’s request for comment based on member feedback. CREFC plans to host a conference call in the coming days to discuss. The due date for comments is August 29, 2022.


Contact

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org

On July 19, the Federal Reserve Board (the “Board”) issued a press release inviting comment on a proposal related to the Adjustable Interest Rate (LIBOR) Act, which Congress passed on March 15, 2022.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2022 CRE Finance Council. All rights reserved.
Federal Reserve Releases Proposal to Implement Federal LIBOR Legislation
August 1, 2022
On July 19, the Federal Reserve Board (the “Board”) issued a press release inviting comment on a proposal related to the Adjustable Interest Rate (LIBOR) Act, which Congress passed on March 15, 2022.

News

CREFC Alert: Federal Reserve Releases Proposal to Implement Federal LIBOR Legislation

July 22, 2022

On July 19, the Federal Reserve Board (the “Board”) issued a press release inviting comment on a proposal related to the Adjustable Interest Rate (LIBOR) Act, which Congress passed on March 15, 2022. The law:

  • Addresses LIBOR contracts governed by U.S. law that remain outstanding after the planned cessation of LIBOR on June 30, 2023, and

  • Directs the Board to publish the regulations (the “proposal” or the “proposed rule”) required for its successful implementation.

What Is the Fed Asking?
The Fed seeks input on a proposal that provides default rules for certain contracts that use the LIBOR reference rate. In effect, the proposed rule would establish benchmark replacements for contracts that reference LIBOR and that do not have terms that provide for the use of a clearly defined and practicable replacement rate following the first London banking day after June 30, 2023 (the “LIBOR replacement date”).

Comments on the Board’s proposal will be accepted for 30 days after its publication in the Federal Register (which is yet to be determined). However, it should be noted that the law directs the Board to promulgate regulations not later than 180 days after the date of enactment (or September 11, 2022). As a result, the final rule's effective date would be well before the LIBOR replacement date.

Legacy Contracts and the LIBOR Act
On the LIBOR replacement date, the proposal will replace references to LIBOR in “covered contracts” with a Board-selected rate which, as required by the law, will be based on the Secured Overnight Financing Rate (SOFR). The proposal defines “covered contract” to mean a LIBOR contract that has one of the following characteristics as of the LIBOR replacement date:

  1. Contains no fallback provisions;

  2. Has fallback provisions that identify neither a specific benchmark replacement nor a determining person; or

  3. Identifies a determining person, but the determining person fails to select a benchmark replacement.

The proposal further clarifies that a covered contract would not include any LIBOR contract that the parties have agreed in writing shall not be subject to the LIBOR Act.

Board-Selected Replacement Rates
The Board-selected benchmark replacements for the various types of covered contracts are identified in the table below.

 

Critically, the law also authorized the Board to require any “additional technical, administrative, or operational changes, alterations, or modifications to LIBOR contracts” (i.e., “conforming changes”) to aid in the implementation of the Board-selected benchmark replacement rates. However, the proposal states that the Board “does not believe any additional conforming changes would be needed for successful implementation of the Board-selected benchmark replacements” but that it reserves the authority, in its discretion, to “require any additional conforming changes, by regulation or order.”

Request for Comments
The Board indicates that, if finalized, the proposed rule will become effective on “the first day of the next calendar quarter that begins 30 days after publication of the final rule in the Federal Register.” The Board invites comments on all aspects of the proposed rule and, in addition, specific questions, including:

  • What, if any, alternative SOFR-based benchmark replacements should the Board consider for covered GSE contracts instead of 30-day Average SOFR, such as SOFR term rates?

  • Should the Board identify a single Board-selected benchmark replacement for all covered contracts?

  • What, if any, additional clarifications should the Board consider regarding the Board-selected benchmark replacements?

  • What, if any, benchmark replacement conforming changes should the Board consider?

CREFC welcomes your feedback on the proposal, and for any questions or comments, please contact Raj Aidasani or Lisa Pendergast. If members have concerns or suggestions on the Board’s proposal, CREFC will be happy to submit a comment letter accordingly.


Contact 

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org
On the LIBOR replacement date, the proposal will replace references to LIBOR in “covered contracts” with a Board-selected rate which, as required by the law, will be based on the Secured Overnight Financing Rate (SOFR). 
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2022 CRE Finance Council. All rights reserved.
Alert - Federal Reserve Releases Proposal to Implement Federal LIBOR Legislation
July 22, 2022
On July 19, the Federal Reserve Board (the “Board”) issued a press release inviting comment on a proposal related to the Adjustable Interest Rate (LIBOR) Act, which Congress passed on March 15, 2022.

News

Refinitiv to Publish Fallback Rates Based on Term SOFR

July 11, 2022

On July 11, Refinitiv announced that it intends to launch rates based on CME’s term SOFR plus the ARRC’s recommended spread adjustments beginning in September 2022. Refinitiv, an LSEG (London Stock Exchange Group) business, is a provider of financial markets data and was selected by the ARRC in March 2021 to publish its recommended fallback rates.

The term SOFR versions will be available as all-in spread adjusted rates in 1-month, 3-month, 6-month, and 12-month tenors. “Market participants can now start confidently transitioning legacy contracts away from USD LIBOR and onto the ARRC’s recommended fallback rates without delay,” said Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv. “These rates provide the industry with an efficient solution that reduces the operational burden on market participants and protects legacy contracts once LIBOR is no longer available.”

More information on Refinitiv’s LIBOR fallbacks can be found here.

Contact 

Raj Aidasani
Senior Director, Research
646.884.7566
raidasani@crefc.org

More information on Refinitiv’s LIBOR fallbacks can be found here.

 
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2022 CRE Finance Council. All rights reserved.
Refinitiv to Publish Fallback Rates Based on Term SOFR
July 11, 2022
On July 11, Refinitiv announced that it intends to launch rates based on CME’s term SOFR plus the ARRC’s recommended spread adjustments beginning in September 2022. Refinitiv, an LSEG (London Stock Exchange Group) business, is a provider of financial

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