LIBOR Transition: What You Need to Know
UPDATED April 6, 2022 AT 12:00 PM
LIBOR, which stands for the London Interbank Offered Rate, is being phased out as the lending rate benchmark for banks worldwide. During this transition period, we want to keep you informed about the latest developments and how they may affect your Lakeland Bank loan.
Effective September 1, 2021, Lakeland has stopped issuing new loans with LIBOR as an interest rate index. In addition, any modification to a loan based upon LIBOR requires that a replacement interest rate index be implemented immediately.
Lakeland continues to monitor activity with the SOFR and BSBY indices and will be determining a replacement index for existing LIBOR-based loans that mature after June 30, 2023. We expect that well before that date the markets will have grown and stabilized so that we can choose the appropriate replacement index, with adjusting credit spread, if necessary, that will mirror the economics of the existing loan structure.
Below you will find additional information and frequently asked questions to help you stay up to date.
What is LIBOR?
LIBOR, an interest rate benchmark, has been used globally to gauge funding costs and investment returns for financial contracts. LIBOR is the base interest rate index on many loans, swaps, bonds, credit cards, adjustable rate mortgages, and other products offered by financial institutions.
Why is LIBOR being phased out?
LIBOR is based upon the anticipated cost of borrowing for certain global banks on an unsecured basis. In July 2017, British regulators, who have primary responsibility for supervising LIBOR, announced their intention to phase out LIBOR by the end of 2021. This phase out date was subsequently modified to June 30, 2023 for most LIBOR rates. The stated goal is to transition from LIBOR to a new interest rate index that is based primarily on actual borrowing transactions.
How is Lakeland Bank preparing for the LIBOR transition?
The ICE Benchmark Administration (IBA) announced on 3/5/21 that the 1-week and 2-month LIBOR rates will cease as of 12/31/21. IBA also announced that the overnight, 1-month, 3-month, 6-month, and 12-month LIBOR rates will continue until 6/30/23. The United States Federal regulators announced they do not want banks to enter into new LIBOR contracts after 12/31/21.
The results of these announcements for Lakeland Bank borrowers are as follows:
- Lakeland Bank has stopped offering new or renewed conventional loans based on LIBOR as of 9/1/21.
- Loans based on LIBOR that mature before 6/30/23, and are approved for renewal or extension, will be transitioned to an alternate rate index.
- Loans based on LIBOR that mature after 6/30/23 will be transitioned to an alternate rate index with an adjusting spread, if necessary, so that the resulting new rate will be as comparable to the original LIBOR based interest rate.
- Swap loans based on LIBOR that mature after 6/30/23 will be transitioned to an alternate rate index, with an adjusting spread, so that the fixed rate obtained through the swap transaction will essentially remain intact.