Effective as of February 1, 2014, Intercontinental Exchange (ICE) Benchmark Administration Ltd. took over as the new administrator of LIBOR. A new administrator to replace the British Banker's Association (BBA) is one of the recommendations made in the Wheatley Review report, which was a report undertaken in the UK as a review of possible reforms to the framework for setting and governing LIBOR.
It is estimated that contracts with an outstanding value in excess of $300 trillion reference the LIBOR benchmark. ICE confirmed in its press release on January 17, 2014, that to safeguard a smooth transition to ICE as administrator of LIBOR, that there will be no immediate change to the calculation of LIBOR.
Eventually however, it is possible, and likely probable, that the calculation methodology of LIBOR will change. As a result, special consideration should be given to the following matters when reviewing or drafting documents:
Loan Documents for new lending transactions should include definitions which replace the British Banker's Association as the body administering the determination of LIBOR, with references to the ICE Benchmark Association.
Existing loan documentation which refers specifically to BBA LIBOR may require amendment, unless it is clear that it can be interpreted to refer to a successor administrator or calculation methodology for LIBOR.
If existing loan documentation does not clearly refer to a successor LIBOR, the current consensus in the industry, including by the Loan Syndications and Trading Association (LSTA), is that courts would interpret references to BBA LIBOR as a reference to LIBOR as determined by ICE. Nevertheless, this consensus should be balanced against the possibility of changing circumstances and the prudence of amending loan documentation to eliminate any confusion.
Also, it should be noted that the LSTA plans to update its forms of Standard Terms and Conditions to reflect the change to ICE as administrator of LIBOR.