Preparing for LIBOR Substitution: Commercial and Consumer Lending Considerations
As of December 31, 2021 (the “Effective Date”), the use of LIBOR as an index for commercial and consumer loans will likely cease—which presents lenders and other industry participants with the challenges to address: (a) the process for replacing LIBOR as an index for commercial and consumer loans outstanding as of the Effective Date that employ LIBOR as an index; and (b) how to proactively anticipate the end of LIBOR by beginning to substitute a new index for LIBOR between now and the Effective Date.
This Alert will provide a short background on the developments that have lead up to the decision to replace LIBOR, as well as some metrics estimating the scope of commercial and consumer financing transactions that may be affected as of the Effective Date. In addition, this Alert will provide an analysis of factors to be considered when reviewing loan documents using LIBOR as an index, as well as risk-related approaches for drafting provisions to include in current and future loan documents.
