The widely used London Interbank Offered Rate (LIBOR) is being phased out, likely by late 2021. LIBOR is a calculated rate published daily by the Intercontinental Exchange based on information provided by certain participating banks. This has been used as a key reference rate for many financial contracts for a number of years.
A group formed by the Federal Reserve Board and the New York Fed, the Alternative Reference Rate Committee, has recommended transitioning to the Secured Overnight Financing Rate (SOFR) as the new reference rate in the United States. SOFR is considered a risk-free rate based on United States Treasuries.
SOFR cannot simply replace LIBOR in existing financial contracts as these rates are calculated in a different manner. It is important to be aware of this as preparatory language is already being added to new financial contracts during this transition phase. Many of our clients will start to see this in agreements for adjustable-rate debt, credit card arrangements, and a variety of other financial transactions.
If you have any questions, please contact us and we will connect you with one of our professionals.