The transition from LIBOR

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. For decades, LIBOR has been used by financial institutions as a measure of its short-term cost of funds and has been a primary index for commercial lending.

Following the financial crisis of 2008, the ongoing viability of LIBOR came under question. Since that time, the transactions underlying the determination of LIBOR have continued to decline, creating doubt regarding its continued viability. In 2017, the Financial Conduct Authority (FCA), the regulator of LIBOR, announced its intention to discontinue the publication of LIBOR.

On March 5, 2021, the FCA announced the final publication date of over 35 tenors of LIBOR. For USD LIBOR 1-week and 2-month tenors, December 31, 2021, is the final publication date. Publication of all remaining USD LIBOR tenors, including popular 1-month and 3-month tenors, will stop immediately after June 30, 2023. In addition, regulatory guidance provides that in all cases, banks may no longer use LIBOR in new contracts after 2021 and has encouraged banks to discontinue use of LIBOR as soon as practicable.

In anticipation of the end of LIBOR, the Federal Reserve convened the Alternative Reference Rate Committee (ARRC) to develop an alternative rate and to provide recommendations for the financial sectors on the transition away from LIBOR. Truist is actively participating in working groups and other offerings by ARRC.

Truist is carefully monitoring industry developments and alternative reference rates identified in the marketplace to best serve our clients. At this time, the ARRC has recommended the Secured Overnight Financing Rate (SOFR) as an alternative. In addition, the market is actively engaging in transactions with other indexes such as the Bloomberg Short-Term Bank Yield Index (BSBY). This is an evolving process, and markets are continuing to develop plans regarding potential replacements for LIBOR. As alternative reference rates become available at Truist, we’ll share this information with you.

Truist offers a variety of indexes. SOFR based indexes such as daily SOFR, 30-day and 90-day Average SOFR and Term SOFR are available. In addition, the Bloomberg Short-Term Bank Yield Index (BSBY) and Prime are available. We welcome the opportunity to discuss these alternatives with you.

To learn more about SOFR, refer to our SOFR FAQ (PDF)

To learn more about BSBY, refer to our BSBY FAQ (PDF)

Truist is actively preparing for the end of LIBOR. We’re engaged with industry groups and the ARRC, and monitoring real-time developments in LIBOR transition. We’ve established a LIBOR transition team with representatives from all lines of business impacted by LIBOR transition and subject matter experts to manage the transition from LIBOR for the company and its clients. This team is diligently developing and implementing plans to update processes, systems, and documentation, as appropriate.

While most loans include some form of fallback language that provides for the replacement of LIBOR should it become unavailable, we’ve updated our loan documentation to include current industry standard fallback language. We’re also reviewing existing documentation to determine if any further action is required. And, we’re expanding alternative reference rates available for clients to consider.

We understand that the end of LIBOR will impact our clients, and we’re focused on keeping you first by providing communication and education to minimize any disruption this may cause. During the next several months, we’ll provide additional information through client communications, resources, and contact with relationship managers.

Fallback language provides a methodology for the replacement of LIBOR when it’s discontinued. We’ve adopted fallback language based on ARRC recommendations. It provides for LIBOR to be replaced with SOFR-based rates and the appropriate Benchmark Replacement Adjustment. The Benchmark Replacement Adjustment is a static spread adjustment and will be based on the LIBOR tenor being replaced. The ARRC recommended adjustments are:

If you have questions about rate alternatives or how the phasing out of LIBOR will impact your Truist loans or derivatives transactions, contact your relationship manager.