LIBOR is an interest rate benchmark that was used as a reference rate for a wide range of financial transactions. This benchmark was discontinued on December 31, 2021 for certain USD LIBOR tenors and was discontinued on June 30, 2023 for the remaining USD LIBOR tenors.

The Alternative Reference Rates Committee (ARRC), a committee created by the Federal Reserve, selected SOFR as the proposed benchmark alternative to replace USD LIBOR. However, there was also interest among market participants in credit sensitive rates as possible replacements (see Legal Update, Credit Sensitive Rates Appear in Loan Market). For information about the transition away from LIBOR, see Practice Note, What's Market: LIBOR Interest Rate Provisions.

Well before LIBOR's cessation, US federal agencies encouraged banks to cease entering into new contracts that used LIBOR as a reference rate. If contracts used LIBOR, robust fallback language should have been included that provided for a clearly defined alternative reference rate after LIBOR's discontinuation. The agencies recognized that the extension of the publication of the most common panel USD LIBOR tenors until June 2023 should have allowed most legacy USD LIBOR contracts to mature before LIBOR experienced disruptions.

The ARRC published recommended LIBOR fallback language for various cash products, including syndicated loans and bilateral business loans. The ARRC suggested three approaches that agents and lenders could have used to address the discontinuation of LIBOR:

According to the ARRC, agents in syndicated loans or lenders in bilateral loans may also "deem it prudent to include general disclaimer language with respect to LIBOR or any successor rate" in their loan agreements.

This Toolkit contains helpful resources for loan agreement LIBOR fallback language. As panel USD LIBOR has been discontinued, this language should no longer be used in new loan agreements. For information on SOFR fallback language, see Practice Note, What's Market: SOFR Spread Adjustments and Fallback Language.

For a guide to resources that covers important developments relating to LIBOR succession for the primary loan market as well as the derivatives and structured finance markets, see LIBOR Replacement Toolkit.