Let this serve as yet another reminder that the end of the London Interbank Offered Rate (LIBOR) is fast approaching. Time is now running short, as all remaining LIBOR tenors are set to expire on June 30, 2023. With 3+ months until the long-awaited retirement date, the level of overall market preparedness still varies considerably.
Without a clear fallback index, many loans will automatically transition to a prime-based interest rate after the LIBOR cessation date. Since this rate is generally higher than any prevailing market index rate – including SOFR, BSBY and AMERIBOR, the three most common index rate successors in the commercial loan market, and any of the LIBOR tenors that will cease publication on June 30, 2023 – this should generally be viewed as an undesirable outcome and one that banking customers will likely want to avoid.
If your institution has not yet crafted or begun to implement its plan for transitioning legacy LIBOR-based loan agreements to a replacement benchmark interest rate, now is the time to act.