Lawyers pick holes in Libor statutory fix

Bruce Bennett spoke with Risk about legislation designed to switch financial contracts referencing U.S. dollar Libor to a replacement benchmark, which aims to provide immunity from litigation for contracts that are forcibly shunted on to the preferred alternative benchmark, the secured overnight financing rate (SOFR), plus a fixed spread to make up the difference to Libor. The sudden jump in interest payments in the event Libor disappears is likely to draw attention to those contracts that fall back to the prime rate. Mr. Bennett says, “The exclusion of the prime rate affects a significant chunk of the syndicated loan market. It’s never been clear how grounded in transactions the prime rate actually is, which starts begging questions about what people had in mind when they agreed to this rather formal fallback.”