The LIBOR Transition - FAQs, Updates and More Navigating the LIBOR transition What you need to know about the changing interest rate benchmark Contact me Frequently asked questions Additional resources Latest industry updates Industry Update: Term SOFR Announcement and Next Steps On July 29th, the Alternative Reference Rates Committee (ARRC) announced that it is now formally recommending the CME Group’s forward-looking Secured Overnight Financing Rate term rates (TERM SOFR). The ARRC’s formal recommendation of TERM SOFR is a major milestone in the transition away from USD LIBOR. These rates are officially published on the CME website. Union Bank launched TERM SOFR loan products on October 12, 2021. Similar to LIBOR, TERM SOFR is available by Union Bank in 1, 3, and 6 month tenors. Click here for more information. For questions or inquiries related to the LIBOR transition please either reach out to your Relationship Manager or utilize the “Contact Me” button above. What you need to know This is a brief update of impending changes to the London Interbank Offered Rate (LIBOR). LIBOR has been a long-standing index for financial transactions and is currently the most commonly used variable interest rate index for short-term interest rates, business loans, variable-rate loans, financial derivative contracts, and other commercial lending products. Things to keep in mind The ICE Benchmark Administration (IBA), the administrator of LIBOR, and the Financial Conduct Authority (FCA) recently announced that the final publication on a representative basis of most USD LIBOR tenors (1-, 3-, 6- and 12-month, as well as overnight) will extend to June 30, 2023 The one-week and two-month LIBOR tenors will have a final publication date of December 31, 2021, as previously expected Regulators have advised banks to stop entering into NEW contracts with USD LIBOR reference rates as soon as practical and in any event by December 31, 2021 We continue to closely monitor industry groups and government publications for any updates or changes on LIBOR cessation guidance or directives LIBOR transition timeline Frequently asked questions What is LIBOR and why is it important? The London Interbank Offered Rate (LIBOR) is the most commonly used benchmark for short-term interest rates and often is referenced globally in documentation for derivatives, bonds, business loans and consumer financial products. The setting of LIBOR is made daily on London business days by submissions of the average rates at which LIBOR panel banks believe they can obtain wholesale unsecured funding. It is estimated that $200 trillion of financial instruments (loans, bonds, derivatives and consumer financial products) are tied to LIBOR and that matters to everyone – small businesses, corporations, banks, broker dealers, consumers and investors. What is happening with LIBOR and why transition away from it? What is the role of the ARRC? What is SOFR? How is SOFR calculated? Does the ARRC have a timeline for the adoption of SOFR? For existing contracts referencing LIBOR and transitioning to SOFR, do any adjustments need to be made to SOFR to make the economics of the transaction comparable to those based on LIBOR? What happens to existing transactions and contracts? What is happening to new transactions entered into now and in the near future? What is a fallback provision? Given that SOFR is an overnight rate, will forward looking term SOFR be available? Where can I get updates regarding the ARRC and the LIBOR transition process? What is the current status of initiatives of the International Swaps and Derivatives Association (ISDA) for fallback language supporting LIBOR transition for derivatives (non-cash products)? Is MUFG actively working on the transition away from LIBOR? What should my company or business do right now? Additional Resources Follow these links for news and other resources from some of the key industry participants in LIBOR transition: Alternative Reference Rates Committee (ARRC) (US) Loan Syndications & Trading Association (LSTA) (US) Mortgage Bankers Association (MBA) (US) International Swaps and Derivatives Association (ISDA) Financial Services Agency Recent Industry Updates ARRC Frequently Asked Questions & ARRC Best Practices This update follows the Alternative Reference Rates Committee’s (ARRC) formal recommendation of the SOFR Term Rate. The ARRC released best practice recommendations related to the scope of use of the CME SOFR term rates (SOFR Term Rate). The FAQs cover general questions about the scope of use, including why the recommendations were made, and more specific questions, such as the use of the SOFR Term Rate in end-user facing derivatives. ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR Proposed Path Outlines a Clear End Date for USD LIBOR; Would End New Issuances by End-2021, and Subject to Consultation Outcomes, Legacy Contracts Could Mature by Mid-2023 The Alternative Reference Rates Committee (ARRC) today applauded concurrent announcements by LIBOR’s administrator, its regulator, and U.S. regulators, regarding the proposed path forward for the transition away from U.S. Dollar (USD) LIBOR. The announcements include supervisory guidance encouraging banks to stop new USD LIBOR issuances by the end of 2021. They also cite plans to consult on specific timing for ceasing the publication of USD LIBOR, with proposed end dates immediately following the December 31, 2021 publication for the one week and two month USD LIBOR settings, and the June 30, 2023 publication for other USD LIBOR tenors. TO SOFR OR NOT TO SOFR? The OCC, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation issued an Interagency Statement on Reference Rates for Loans reiterating that they are not endorsing a specific replacement rate for LIBOR. Banks may use any reference rate for loans they determine to be appropriate for their funding models and customer needs. The agencies said banks should include language in lending contracts that provides for using a robust fallback rate if the initial reference rate is discontinued. Capital & Liquidity Memo Published The ARRC published a memo summarizing its preliminary findings and recommendations about potential regulatory considerations associated with applying current and anticipated capital and liquidity requirements to the LIBOR transition. ISDA Launches IBOR Fallbacks Supplement and Protocol ISDA announced the launch of the IBOR Fallbacks Supplement and IBOR Fallbacks Protocol, providing a framework for transitioning USD LIBOR interest rate derivatives to SOFR. 257 derivatives market participants signed on to the Protocol during a two-week "escrow" period. US Officials Don't Plan to Endorse Credit-Sensitive LIBOR Alternative Following four Credit Sensitivity work shops,official-sector leaders released a letter stating they do not plan to recommend a credit sensitive supplement to SOFR or credit-sensitive rates. They plan to hold two additional working sessions to further discuss the subject and explore related commercial loan transition solutions. Freddie Mac Prices First Credit Risk Transfer Linked to SOFR Freddie Mac issued its first SOFR-linked credit risk transfer deal (STACR REMIC 2020-DNA5) that uses 30-day average SOFR, but Freddie Mac intends to transition the transaction to an IOSCO compliant one-month term SOFR if and when it becomes available. View archived articles here Disclaimer: The areas and issues covered by this website are continually evolving and you should consult relevant sources and your advisors. Links to some of the relevant working and trade groups are incorporated in the information included on this website. MUFG makes no representation as to the accuracy, completeness or timeliness of such information, which may also be subject to change. The information provided herein is provided for informational purposes only, is not intended to be exhaustive and does not constitute, and should not be relied upon as, legal, regulatory, financial, tax, accounting or other advice. MUFG is not providing any such advice and does not act as your fiduciary. You should consult with your own advisors on the impact of the potential cessation of LIBOR on your business and affairs. MUFG does not warrant or accept responsibility for, and shall not have any liability with respect to, (a) whether the composition or characteristics of any alternative, successor or replacement rate to LIBOR (including SOFR) will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, LIBOR or (b) the costs, expenses or the consequences related to the cessation of LIBOR or the transition to an alternative, successor or replacement rate thereto. None of the information contained herein represents a commitment or a firm offer to transact, nor does it obligate MUFG to enter into any such commitment. 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