As Halloween Approaches, ‘Zombie’ LIBOR Should Appear | Arent Renard


These proposals should be definitively determined as soon as possible after October 20, but certainly by the end of the year.

Zombie libor
As it will not be possible to convert all existing contracts to a new benchmark rate by the end of the year, the UK FCA will allow the use of synthetic LIBOR for sterling LIBOR and Japanese yen LIBOR contracts, although ‘it does not intend to renew its authorization to use the Zombie Rate for Japanese Yen LIBOR after 2022.

Notwithstanding the above, the UK FCA stressed that LIBOR users should continue to focus on actively transitioning to alternative benchmarks rather than relying on synthetic LIBOR rates for those benchmarks.

USD LIBOR Prohibition
British FCA
In the past, US regulators have recommended, and the regulatory expectations of the UK FCA and the UK Prudential Regulation Authority have been, that no new USD LIBOR instruments be entered into after this year, but have not required that this use is discontinued. This proposal, if ultimately determined, makes this orientation and these expectations a requirement.

However, the UK FCA has pointed out that the use of zombie rates for Pound Sterling and Japanese Yen LIBOR is not critical to future USD LIBOR decisions after June 30, 2023.

Survey results[1]
The above is critical in the United States, as 57% of all respondents recently said their institutions continue to benchmark USD LIBOR for new loans. Additionally, more than half of those surveyed said it remains unclear / under-determined when their institutions plan to stop using USD LIBOR for newly issued loans.

The Company’s experience has shown that most new USD loans and renewed / extended / amended legacy loans continue to use USD LIBOR and a benchmark spread adjustment selected at the bank’s sole discretion.

The UK FCA’s proposals aim to ensure the “smooth transition” from LIBOR through (i) the use of temporary synthetic rates for existing sterling and yen instruments, and (ii) the general requirement that no new instrument based on LIBOR in USD is concluded after 2021.

Any other final decision would be too frightening to consider …

[1] The information in this section is based on “LIFE AFTER LIBOR: Recommendations for an Orderly Transition (2021 Survey)”, where SRS Acquiom asked Debtwire to interview 100 executives of the US financial industry in the second quarter of 2021. Executives, who all personally had one in syndicated loans, were split evenly among investment banks, hedge funds, distressed debt funds and direct loan funds.


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