LIBOR Transition

What is happening to LIBOR and what does it mean for you?

On March 5, 2021, the UK Financial Control Authority (FCA), the regulatory supervisor of the ICE Benchmark Administration’s publication of U.S. Dollar LIBOR (USD LIBOR), publicly announced that all remaining tenors of USD LIBOR will cease to be published, or will cease to be representative, as of June 30, 2023.

As a result, Huntington will transition remaining USD LIBOR contracts with its customers to replacement benchmark rates following June 30, 2023. Huntington ceased issuing new USD LIBOR contracts in late 2021.

To help ensure a successful transition from USD LIBOR, the Federal Reserve convened the Alternative Reference Rates Committee (ARRC). The ARRC’s membership is comprised of broad set of private-market participants (banks, asset managers, corporate treasurers, and industry trade associations) and official sector ex-officio members. Huntington is a member of the ARRC and has adopted a number of the ARRC’s recommendations regarding the transition of USD LIBOR contracts to replacement benchmark rates.

In addition, the Adjustable Interest Rate (LIBOR) Act was enacted by Congress on March 15, 2022 to provide a uniform, nationwide solution for replacing USD LIBOR in so-called “tough legacy contracts”, which are contracts that reference USD LIBOR but lack adequate contractual provisions providing for a clearly defined or practicable replacement benchmark rate following the cessation of USD LIBOR. The LIBOR Act also addressed contracts that authorize a party (the Determining Person) to determine the replacement benchmark rate under a USD LIBOR contract. The Federal Reserve issued its final rule implementing the LIBOR Act on December 16, 2022, specifying replacement benchmark rates based on the Secured Overnight Financing Rate (SOFR).

For more information regarding LIBOR Transition and your personal mortgage, see here.

Frequently Asked Questions

Answer:

LIBOR is an interest rate benchmark commonly used as a reference rate in loans and other financial instruments. LIBOR is calculated and published based on submissions by panel banks and is intended to reflect the rate at which large banks can borrow wholesale funds on an unsecured basis. Historically, it has been published for five currencies and seven tenor points. The ICE Benchmark Administration (IBA) is the administrator for LIBOR. The U.K. Financial Conduct Authority (FCA) is the regulatory supervisor of the IBA’s publication of LIBOR.

Answer:

The FCA has publicly announced that all remaining tenors of USD LIBOR will cease to be published, or will cease to be representative, as of June 30, 2023.

As a result, Huntington will transition remaining USD LIBOR contracts with its customers to replacement benchmark rates following June 30, 2023. Huntington ceased issuing new USD LIBOR contracts in late 2021.

Answer:

Huntington will provide written notice to its customers regarding the replacement benchmark rate for their USD LIBOR contracts with Huntington. In most cases, these replacement benchmark rates will be based on the Secured Overnight Financing Rate (SOFR).

SOFR is an overnight rate published daily by the Federal Reserve Bank of New York. It is a broad measure of the cost of borrowing cash overnight secured by U.S. Treasury securities.

The ARRC identified SOFR as its recommended alternative to USD LIBOR after considering a comprehensive list of potential alternatives. It noted that SOFR is derived from an active and well-defined market, is produced in a transparent and direct manner, and is based on observable transactions.

The ARRC recognized that a SOFR-based term rate that resets periodically would help support the smooth transition of legacy USD LIBOR contracts away from USD LIBOR. The ARRC endorsed the Term SOFR rate published by CME Group Benchmark Administration Limited (CME) and supports its use as a replacement benchmark rate in legacy USD LIBOR loans.

The Term SOFR rate published by CME is a forward-looking term rate published for 1-month, 3-month, 6-month and 12-month tenors. It is calculated using transaction data from the Secured Overnight Financing Rate futures market. As a forward-looking term rate that resets periodically, it allows the interest rate to be determined prior to the beginning of each interest period, similar to USD LIBOR.

Answer:

USD LIBOR is intended to reflect the rate at which large banks can borrow wholesale funds on an unsecured basis. SOFR measures the cost of overnight borrowings secured by U.S. Treasury securities. As a secured, nearly risk-free rate, SOFR has historically been lower (on average) than USD LIBOR, which is unsecured and includes an element of bank credit risk.

To address these differences between USD LIBOR and SOFR, the ARRC recommended that a “spread adjustment” be applied to SOFR-based replacement benchmark rates.

In its recommendation for commercial (non-consumer) loans, the ARRC adopted the spread adjustment methodology published by the International Swaps and Derivatives Association Inc. (ISDA). This spread adjustment is determined using a historical five-year median difference between a given USD LIBOR tenor and SOFR. The recommended spread adjustments were fixed and published by Bloomberg on March 5, 2021. The recommended spread adjustments are as follows:

USD LIBOR tenor being replaced Spread Adjustment
1-month USD LIBOR 0.11448%
3-month USD LIBOR 0.26161%
6-month USD LIBOR 0.42826%
12-month USD LIBOR 0.71513%

In order to provide for a smooth transition for consumers, the ARRC recommended that the spread adjustment on consumer loans initially be equal to the difference between USD LIBOR and Term SOFR on June 30, 2023. During the following one-year period, the spread adjustment will increase on each business day on a linear basis until it equals the spread adjustment set forth above. Following the end of this one-year period, the spread adjustment will equal the spread adjustment set forth above for the remainder of the applicable contract.

LIBOR Transition Resources

We encourage all market participants with exposure to USD LIBOR to be informed on the USD LIBOR transition by leveraging the following sources:

If you can’t find what you’re looking for, please let us know. We are ready to help.

†$909B average daily trading volume, February 17, 2021 - March 16, 2021, FRBNY

‡https://apps.newyorkfed.org/markets/autorates/SOFR

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