Cessation of LIBOR
Cessation of LIBOR Solicitors, London. International.
The London Interbank Offered Rate (“LIBOR”) will cease to be published at the end of 2021. It is overwhelmingly likely to be replaced by the Sterling Overnight Index Average (“SONIA”) published by the Bank of England. The impact of this change will be enormous, but its full implications and the consequent risks and opportunities, in many instances, are yet to be appreciated.
There is a lot to unpack with the cessation of LIBOR not only legally but also in terms of understanding the calculations converting from LIBOR to SONIA. However KaurMaxwell is here to help guide you through such unchartered territory. Generally, LIBOR is numerically greater than SONIA therefore once the terms of the facility are varied to be indexed to SONIA rather than LIBOR there will need to be a compensation to one party for the differential value.
Although the parties to the facility can agree by consent to vary the facility, it is to be anticipated that financial institutions will make offers, and accordingly, it is very important for counterparts to be ready with their own calculations to ensure fair play. KaurMaxwell will help ensure that you will get the best offer for any facility which will be indexed to SONIA.
Our specialist team are aware of the risk that there may be pressure on borrowers who are close to breaching their covenants to accept a change to a different index, possibly without compensation, when the terms would otherwise indicate that compensation should be given. Therefore if you have any loan facilities which are currently indexed to LIBOR, contact us so we can provide you guidance in the first instance.