The UK’s Association of Corporate Treasurers Change of Administrator has produced an excellent ‘Briefing Note: LIBOR Adminstrator Change to ICE Benchmarks from BBA: Implications for non-financial companies’ - see. (N.B. It is not as long as the title, only eight pages.)

The note summarises the background to the new LIBOR rates: the Wheatley Review set up by the Chancellor of Exchequer (the UK’s finance minister) in July 2012 and the review’s main recommendations included:

• creation of a new framework of law and regulation

• making designated benchmark compilation and distribution a regulated activity under the Financial Conduct Authority (FCA) 

•publication of a new Code of Conduct for Contributing Banks

•transition to a new independent LIBOR Administrator. 

Changes implemented
1. ICE Benchmarks Ltd was selected as the new administrator who will be introducing their own Licence and usage fees. In the first instance, these will apply to any provider redistributing the LIBOR rates who may in turn decide to charge users. Users simply viewing real-time Libor rate information through a redistributor will not require a licence.

2. There will be a new Oversight Committee6, which will administer the LIBOR code of conduct. (ACT has asked if they can be a member.)

Immediate implications for corporates
ACT has listed, with all the caveats you would expect, the main implications for corporates: 

• Loan agreements, and some commercial contracts too, will typically make use of and therefore, define LIBOR. Particular wordings will need to be checked to determine if they still hold good following the change of Administrator.
• The wording used in recent loan agreements based on the Loan Market Association standard documents will refer to “the London interbank rate administered by the British Bankers Association (or such other person, which takes over the administration of that rate)….” and can therefore withstand the change, but new agreements should be adjusted.
• Older agreements may not have catered for the possibility of a change. The outcome will depend on the precise terms of the contract, but, as an example, the English courts have a number of tools at their disposal to achieve continuity (notably contractual interpretation and implication of terms). Clifford Chance has prepared a briefing paper discussing LIBOR reform and contractual continuity – issues for the financial markets7 generally
• Non-financial companies using LIBOR as benchmark rates in, for example, intra-group financing or for interest on customer overdues, would in principle require a licence from ICE Benchmarks as they did from BBA LIBOR Ltd. ICE Benchmark’s terms and conditions are available from their web page https://www.theice.com/iba.jhtml.

Longer term implications of review processes 
Regulators across the globe have been concerned over the integrity of the rate gathering process for interest rate benchmarks and other financial benchmarks in general use. ACT list the main activities at IOSCO (The International Organisation of Securities Commissions) and the G20’s Financial Stability Committee which is considering interest rate reference rates that could be used as an alternative to LIBOR and will issue a report later this year. The ACT hope “but hope for continued availability of ~IBOR-type rates alongside others so that users can choose what suits them best.”

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Nothing is simple anymore, corporate treasurers are going to have to choose which rating system to use in their contracts.