BBA LIBOR No Longer Exists

February 5, 2014

Authored by: Brian Devling

Commercial and consumer loans commonly accrue interest at a rate calculated in reference to LIBOR, the London Interbank Offered Rate. LIBOR was designed to be the average interest rate that leading banks in London, England would charge other banks. The British Bankers Association (BBA) administered LIBOR and many loan documents refer to BBA LIBOR. Effective February 1, 2014, the BBA no longer administers LIBOR. The Intercontinental Exchange Benchmark Administration Ltd (ICE) now has responsibility for LIBOR. The handover is part of the fallout from the recent scandal caused by banks trying to manipulate LIBOR.

Going forward any references to BBA LIBOR in your loan document templates should be updated. There is no need to refer to the entity administering LIBOR. A general reference to the London Interbank Offered Rate should suffice. Even better, many loan documents refer to LIBOR as reported by Reuters because that is where the lender is actually obtaining the rate. Loan documents should also contain provisions to accommodate future, unexpected changes in LIBOR or the Reuters reporting service.

What if you have existing loans that reference BBA LIBOR? Probably nothing. The existing loan documents may have language to account for successors to BBA. For example, defining LIBOR as the London Interbank Offered Rate set by the BBA (or any successor thereto). Even if that type of successor language is not in the loan document, the early consensus in the lending community is that a court will interpret a reference to BBA LIBOR as a reference to LIBOR determined by ICE.

To be safe, as existing loans are amended for other reasons, the LIBOR definition should be updated to avoid any argument about the determination of the interest rate. Over time, the issue will go away as loans are modified or refinanced with loans made on updated loan documents.