On April 3, 2023 the U.K. Financial Conduct Authority (“FCA”) announced that it will require the administrator of U.S. dollar LIBOR to continue to publish one, three and six-month U.S. dollar LIBOR settings until September 30, 2024, using an unrepresentative synthetic methodology (“synthetic USD LIBOR”).  Each synthetic USD LIBOR tenor will be the same as the relevant CME Term SOFR rate plus the respective ISDA spread adjustment.  In other words, synthetic USD LIBOR will be the same as the “Board-selected benchmark replacement” for the relevant tenor under the Adjustable Interest Rate (LIBOR) Act (“AIRLA”) and Rule 253.4 of Regulation ZZ.

For issuers of USD LIBOR floating rate notes governed by New York or other U.S. law, synthetic USD LIBOR is irrelevant.  If an issuer of a USD LIBOR floating rate note with a discretionary replacement provision chose synthetic USD LIBOR instead of the Board-selected benchmark replacement, even though they will be the same rate, AIRLA’s safe harbor provisions would not be available to the issuer or the determining person.

Synthetic USD LIBOR could be helpful for an issuer of a U.K. law governed floating rate note linked to USD LIBOR.  A U.K. law governed floating rate note would not be subject to AIRLA or Rule 253.  Depending on how the description of the screen rate is drafted, it is possible that synthetic USD LIBOR could replace USD LIBOR.  Most USD LIBOR floating rate notes, however, describe a replacement for the Reuters Page LIBORO1 setting as a page used to display “interbank lending rates in the London market.”  That description would rule out using synthetic USD LIBOR, even if it appears on Reuters Page LIBOR01 or a successor page, because synthetic USD LIBOR is not an interbank lending rate.

Synthetic USD LIBOR may not be used in new issuances. The FCA announcement is available here.

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