Guidance on LIBOR discontinuation
Friday 5 April 2013
Following the recent discoveries in relation to the London Interbank Offered Rate (LIBOR) manipulation, the British Bankers Association, which oversees the compilation, has recommended the discontinuation of a number of LIBOR calculations. Some discontinuations will eliminate all LIBOR calculations for particular currencies and some maturities for major currencies. The latter relate to the less liquid LIBOR maturities of five- and seven-month LIBOR. The discontinuations, which will be effective as of May 2013, potentially affect existing loan or swap contracts that uses one of the discontinued maturities.
The International Swaps and Derivatives Association, Inc. (ISDA) has issued a Guidance Note describing the relevant issues. ISDA has also published a model amendment that can be used by parties to modify relevant documents to substitute the use of an interpolated LIBOR for any discontinued LIBOR in a major currency. It is not an obligation to follow the ISDA Guidance or use the ISDA amendment, however these documents may facilitate the discussion of the discontinuation issues.
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