The Death of LIBOR: Why You Should Care

Minneapolis, MN: March 2021

All borrowers, lenders and investors should care because you will be impacted if you have any one of the following forms of debt:

  • Adjustable or variable rate notes / bonds
  • Bank loans                       
  • Lines of credit
  • Derivatives           
  • Leases
  • Student Loans      
  • Credit Cards

The purpose of this article is to raise awareness, share information and provide suggestions. For the sake of brevity, our comments relate to capital market activities listed in the first column above. At best, the transition away from LIBOR will create noise. Worst case, the economics of previous decisions will become too costly or too complicated to sustain and require restructuring.

What is LIBOR and Why is it Scandalous?

The London Inter Bank Offered Rate (“LIBOR”) is a benchmark interest rate administered by the Intercontinental Exchange (“ICE”). As an index, it is used to establish the interest rates on various debt instruments including variable rate bonds, loans and other financial obligations.1 LIBOR has been a widely used index globally for decades providing an “average rate” or benchmark for trillions of dollars in loans and securities.2  Unlike other forms of variable rate debt, LIBOR is a widely accepted index offering multiple modes and acts as the economic basis for variable rate loans, bonds, lines of credit, derivatives, and leases among other obligations.

The LIBOR rate has been marred by scandal and manipulation, illuminated during the financial crisis of 2008-2009 and European debt crisis of 2011-2012. Member banks establishing the rate essentially submitted rates to benefit themselves instead of the actual transaction cost.3 Since 2012, regulator investigations in the United States, United Kingdom and European Union have fined banks more than $9B for their participation in these rigging schemes.4

LIBOR to be Phased Out & Alternative

On November 30, 2020, the ICE Benchmark Administration announced its intention to cease publishing one-week and two-month LIBOR on December 31, 2021 and the remaining tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023. The Federal Reserve System Board of Governors, the Office of the Controller of the Currency, and the Federal Deposit Insurance Corporation have recommended that banks cease entering into new contracts using LIBOR as a reference rate right away but no later than December 31, 2021.

In the United States, the alternative reference rate to LIBOR is the Secured Overnight Financing Rate (“SOFR”).5 The New York Federal Reserve first began publishing SOFR in April of 2018. Needless to say, the creation of a new reference rate is easier to start than to establish. Its use, application and ultimate market acceptance as the “economic basis” for the various types of debt obligation investments and derivatives is uncertain.

Why You Should Care & What You Should Do

Your cost of borrowing is unclear and may be difficult to determine and quantify going forward. Borrowers, lenders and investors need to review the debt, lease and derivative portfolios and analyze documents for each investment, security, obligation, or loan that cites LIBOR as its referenced rate.

Each agreement is governed by its own contract terms and parties should look for explicit fallback language, alternative rates, mode, call and redemption provisions. If language is explicit, then amendments will need to be made but trading performance and spreads to the new reference rate are uncertain, unanticipated risk introduced, or returns reduced. If your agreements have inadequate fallback or alternative language, then parties will be exposed to unintended risks, changing economics, and potential restructuring. LIBOR is also a common reference rate for interest rate derivatives. At a minimum, product performance, cost and risk from these transactions should be re-evaluated within operating, debt, and derivative portfolios.

Other considerations include tax risks, continuing disclosure agreements [for 501(c)(3) corporations], installment sale agreements, reimbursement agreements governing letters of credit, standby bond purchase agreements governing the purchase of bonds upon optional or mandatory tender, other credit facilities and certain investments products, to name a few.6, 7 Regardless of circumstance, the discontinuance of LIBOR as a reference rate is upon you. The true impact has yet to be determined and is case by case. We highly recommend you be proactive, start your reviews, and amend or restructure products as soon as possible.

LAIRD CAPITAL, LLC is an independent investment and merchant bank in Minneapolis, Minnesota, that provides financial and strategic advice to boards and c-suites of corporations, trusts, partnerships, institutions, and government-related entities.

T.E. Laird & Co., LLC is an independent investment bank advising on mergers and acquisitions, capital formation including debt, equity and derivatives and other consulting services. T.E. Laird Securities, LLC is registered with the U.S. Securities and Exchange Commission (“SEC”) as a broker dealer and is a member of the Financial Industry Regulatory Authority (“FINRA”), Municipal Securities Rulemaking Board (“MSRB”), and Securities Investor Protection Corporation (“SIPC”). Laird Capital, LLC and its affiliates and personnel are also registered municipal advisors with the SEC and MSRB and have decades of experience with equity, debt, derivatives and other investment products. For more information, go to


1 Intercontinental Exchange
2 SEC “Staff Stalemate on LIBOR Transition” (7.12.19)
3 Understanding LIBOR Scandal,” Council on Foreign Relations (10.12.16)
5 Alternative Reference Rates Committee (June 2017)
6 IRS Revenue Procedure 2020-04 (“Rev Proc 2022-44”) (10.9.20)
7 U.S. Securities and Exchange Commissission 15c2-12

Laird Capital, LLC News/Advisory Bulletin © 2021. All rights reserved. T.E. Laird Securities, LLC is a member FINRA/MSRB/SIPC.

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