LIBOR Phase-Out 2023 Risk Factor

Summary

This risk factor is meant for use in a public company's periodic disclosure or registration statement to disclose risks relating to the phase-out of the London Interbank Offered Rate (LIBOR) which occurred in 2021, although some tenors of U.S. LIBOR were extended until June 30, 2023. This clause contains practical guidance and drafting notes. LIBOR is an interest rate that was commonly used as a basis for calculating interest rates in all kinds of indebtedness, including credit facilities and notes, in securities (particularly asset-backed securities), and in interest rate swaps and other derivatives. In 2017, the Chief Executive of the U.K. Financial Conduct Authority announced that, in 2021, it would no longer require or persuade banks to submit rates to be used to calculate LIBOR. On December 31, 2021, certain tenors (rates) for U.S. Dollar LIBOR (along with all tenors of GBP, EUR, CHF, and JPY) were discontinued, with others remaining in place until June 30, 2023. The U.S. Federal Reserve, with the Alternative Reference Rates Committee (an industry consortium), have identified the Secured Overnight Financing Rate (SOFR) as their preferred replacement index, however some uncertainty remains as to whether SOFR or another rate will actually replace LIBOR. The completion of the LIBOR phase-out and replacement will have significant impacts upon companies' LIBOR-based indebtedness, securities, and other contracts and instruments. You should tailor the language in these risk factors to fit the specifics of the company's business, its indebtedness, its exposure to LIBOR, developments in alternative rates, and other relevant circumstances. For information on drafting risk factors, see Risk Factor Drafting for a Registration Statement and Top 10 Practice Tips: Risk Factors. For more on IPOs generally, see Initial Public Offerings Resource Kit.