Pub. 10 2021 Issue 3

Pub. 10 2021 Issue 3 33 Chris Rockers, Partner christopher.rockers@huschblackwell.com | 816.283.4608 Arizona | California | Colorado | Illinois | Missouri | Nebraska | Tennessee | Texas | Utah | Washington, DC | Wisconsin huschblackwell.com 4801 Main Street, Kansas City, MO 64112 | 816.983.8000 Changes are coming. Are you prepared? Impacting more than $200 trillion in financing and contracts, the rapidly approaching LIBOR transition represents one of the largest changes to the financial services industry, impacting nearly all lenders and borrowers. Husch Blackwell has assembled a team with the right mix of legal experience, industry knowledge and business acumen to guide clients through the transition. Learn how we can help at huschblackwell.com/LIBOR. The ARRC has recommended the use of Daily Simple SOFR over Daily Compounded SOFR due to the minimal difference between the two and avoidance of complications in calculations. We have seen at least one market participant in a new contract use Daily Simple SOFR as the starting reference rate with fallback language to Term SOFR once it is established or a different rate becomes more appropriate. We have also heard some discussion of using other reference rates, which may be credit-sensitive rates, and such credit-sensitive rates may include a rate referred to as AMERIBOR – but we have not seen AMERIBOR’s or any other credit-sensitive rates’ utilization in new transactions or specifically included in LIBOR fallback provisions. III. HowCan You Protect Yourself? Going forward, you should address the legal and operational risks you might have with LIBOR transition. You should first examine your existing loan documents and other contracts and quantify any LIBOR exposure. If you have any contracts that use LIBOR as a reference rate, a review should be conducted on the actual language in each contract to identify how each contract will determine a replacement rate when LIBOR ceases. Fallback language that only addresses the temporary unavailability of LIBOR may not be sufficient to handle the permanent discontinuance of LIBOR. Moreover, if existing loan documents and other contracts include a fallback to the “prime rate”, it still might not be an ideal long-term reference rate since the prime rate is usually higher than LIBOR and may not be an acceptable long-term replacement to your borrowers. Lastly, for any loan documents or other contracts that use LIBOR, you should consider approaching your borrowers or other contract counterparties to propose amendments to provide clear and specific language that addresses how to transition to a new reference rate. If you use third-party vendors to produce your loan documents or maintain any of your operations systems, you should contact them regarding any upcoming steps they are taking to transition away from LIBOR and that their systems will be updated appropriately in a timely manner. There is still a lot of uncertainty on what the LIBOR transition will bring, and although this transition may be disruptive in the short term, moving to SOFR or another similar benchmark reference rate should bring further stability to the financial markets over the long term. Christopher Rockers is a Kansas City-based partner with Husch Blackwell LLP and co-leads the firm’s LIBOR team. Nicholas Kenney and Ani Kaufmann Mamisashvili are attorneys in Husch Blackwell LLP’s Kansas City office and are members of the firm’s Banking & Finance team.