The London Inter-Bank Offered Rate, commonly referred to as LIBOR, is the benchmark interest-rate used by most of the guaranteed lenders in EXIM guaranteed loans to date. It is also the exclusive benchmark interest rate used by EXIM with respect to such loans following any post-default claim payment. When LIBOR is used in this context in EXIM’s loan documentation, it is referred to as “Special LIBOR”.
LIBOR is in the process of being phased out, with a target date of June 2023 for discontinuation of most US LIBOR tenors. EXIM currently plans for all use of LIBOR (including “Special LIBOR”) in EXIM supported financings to be discontinued by that June 2023 target date.
LIBOR’s discontinuation impacts all commercial and official (governmental and multilateral) lenders with LIBOR-based products.
EXIM’s LIBOR-based loans are all documented under credit agreements governed by the laws of the State of New York. The “Special LIBOR” clauses in these agreements generally do not provide for a non-LIBOR based fallback mechanism following LIBOR’s discontinuation, but these clauses are covered by recently enacted LIBOR transition-related protections under New York law. The text of this new law can be found at: https://www.nysenate.gov/legislation/laws/GOB/A18-C. The law provides that in the case of LIBOR-based contracts containing no fallback provisions or with fallback provisions providing for a benchmark replacement based on LIBOR, the SOFR-based1 benchmark replacement recommended by the U.S. Federal Reserve Board, the Federal Reserve Bank of New York or the Alternative Reference Rate Committee (ARRC)2, will automatically apply.
For newly originated LIBOR-based loans, EXIM has already updated its template credit agreements to include the ARRC’s previously recommended “amendment approach” for handling the pending LIBOR transition. This approach works seamlessly with the LIBOR transition mechanisms provided under the above-referenced New York law.
For older LIBOR-based loans in EXIM’s portfolio that were entered into prior to EXIM’s implementation of the “amendment approach” fallback language in its credit agreement templates, EXIM currently expects that, for purposes of “Special LIBOR,” it will rely on the New York law’s automatic / mandatory replacement of LIBOR with the recommended benchmark replacement once LIBOR is discontinued. EXIM will coordinate with its guaranteed lenders and impacted borrowers regarding the best approach to take with respect to any other LIBOR-based interest rate clauses in EXIM’s guaranteed loan agreements.
1 SOFR, or the Secured Overnight Financing Rate, is a secured interbank overnight interest rate and reference rate established as an alternative to LIBOR. The ARRC (see footnote 2) selected SOFR as the preferred alternative to LIBOR.
2 The ARRC is a group convened by the U.S. Federal Reserve Board to plan for LIBOR transition and make recommendations.