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LIBOR Cessation is June 30, 2023


LIBOR will cease to be published as a representative index rate after June 30, 2023. Read on to learn what you need to know about LIBOR cessation.

LIBOR Cessation

On June 30, 2023, USD LIBOR will cease to be a representative index rate. At this time, working in partnership with our Customers, the vast majority of TD loans with USD LIBOR rates will have transitioned to indices based upon the Secured Overnight Financing Rate (SOFR) as recommended by US regulators, specifically CME Term SOFR.

Under the US Adjustable Interest Rate (LIBOR) Act (the "Act"), signed into law by President Biden in 2022, in-scope USD LIBOR loan contracts governed by US law will automatically convert to adjusted Term SOFR if an amendment is not completed before July 1, 2023.

A small number of TD loan contracts not covered by the LIBOR Act may continue in LIBOR as published by the ICE Benchmark Association and calculated on a synthetic basis (Synthetic LIBOR) through the end of September 2024. However, Synthetic LIBOR for loan contracts will be calculated similarly to adjusted Term SOFR. Other contracts may fallback to other specified rates.

TD Bank is here to help if you have any questions or need assistance. As always, please reach out to your TD Relationship Manager.

Background

A key reason to end LIBOR was set in motion by the 2008 financial crisis which revealed LIBOR's lack of transparency and vulnerability to manipulation. Over time, however, as the number of transactions has decreased, it relied more heavily on subjective judgment.

On March 5, 2021 the ICE Benchmark Administration (IBA), the administrator for LIBOR, announced that it planned to stop publishing USD LIBOR as of the dates below. They extended the publication of remaining USD LIBOR tenors until June 30, 2023 to allow legacy contracts to mature or be renewed on an ARR before LIBOR ceases to be published.

IBOR Currency

Final Publication Date

USD LIBOR

June 30, 2023

CDOR

June 30, 2024

Industry groups like the Federal Reserve Bank of New York's Alternative Reference Rates Committee (ARRC) Alternative Reference Rates Committee (newyorkfed.org) and the International Swaps and Derivatives Association www.ISDA.org worked to identify new reference rates. The ARRC recommended the Secured Overnight Finance Rate (SOFR ) as an index to replace LIBOR in loans and other financial instruments.

Private industry providers published other ARRs in addition to SOFR, including the credit sensitive rate such as the Bloomberg Short-Term Bank Yield index (BSBY) and Ameribor published by the American Financial Exchange.

TD Bank offers SOFR-priced products and continues to evaluate credit sensitive ARRs for future use on a product-by-product basis.

Making the switch from LIBOR – TD adopts SOFR First strategy

TD adopts SOFR First strategy

TD no longer issues new LIBOR products effective November 1, 2021. All new deals and most renewals are being priced using an ARR. TD selected the SOFR as the primary ARR for use in existing contracts priced at USD LIBOR. Because SOFR is a nearly risk-free index based on transactions secured by US treasuries, it has historically been a lower rate than USD LIBOR, which is unsecured and is sensitive to market credit stress. The 5 year average historical difference between USD LIBOR and SOFR is approximately 11.5 basis points (bps) and may change over time. Market SOFR pricing is anticipated to include margins that reflect historic differences with LIBOR.

A seamless shift

To provide our Customers with a smooth transition from LIBOR, we established a company-wide initiative several years ago focused on:

  1. Participating in industry groups exploring new benchmark rates

  2. Choosing the best ARRs for each TD product

  3. Improving systems and other infrastructure to prepare for the switch

  4. Communicating with you about upcoming changes

  5. Amending LIBOR contracts with updated fallback to assist in the transition

    • "Fallback" refers to contract provisions that permit replacement of LIBOR with an ARR within a designated time frame

  6. Creating efficient processes for updating existing products

If you have any questions, reach out to your TD representative.

Transitioning LIBOR-indexed loans with swaps

In alignment with the LIBOR Act, outstanding LIBOR-indexed loans with swaps will transition after June 30, 2023 to a forward-looking alternative index rate based on SOFR.

In most cases, this will be one-month Term SOFR plus the LIBOR Act credit spread adjustment of 0.11448% (Adjusted Term SOFR). The swap will transition to daily compounded SOFR plus the LIBOR Act credit spread adjustment of 0.11448%.

Because the loan and swap contracts have different indices, the floating interest rates on the two contracts may not be equal and offsetting. Customers may be required to pay amounts in addition to what is currently required under LIBOR-indexed loan and swap contracts. This difference will exist until both contracts are amended to Term SOFR with a spread adjustment that allows the original swap fixed rate to remain unchanged.

If you have any concerns about impacts of potential differences in the loan and swap index rates, please contact your Relationship Manager for more information.