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Can I Still Extend My LIBOR Cap?

January 5, 2022

Happy New Year!  2022 is here and for those who have been closely following the transition away from LIBOR, you might be wondering what that means for hedging.  Initially LIBOR was expected to cease publication at the end of 2021, but on March 5, 2021, regulators announced all LIBOR tenors would cease publication after June 30, 2023.

 

That doesn’t mean 2021 carries no significance though.  Regulators have been encouraging market participants to cease issuing new LIBOR contracts as soon as possible but no later than December 31, 2021 (read – no new loans based on LIBOR beginning January 1, 2022).

 

Between now and June and 2023 it’s expected that most legacy LIBOR based contracts will mature or transition to an alternate index, but if you have a LIBOR hedge expiring sometime between now and then, you might need to extend it.

 

The good news is that we still expect some banks to offer extensions on legacy (pre-2022) contracts for at least the first part of 2022, possibly even into 2023.  Most banks will just require borrowers provide evidence that the transaction is to hedge exposure or novate a contract entered into before January 1, 2022.

 

In other words, LIBOR cap extensions are still possible and should be pretty painless for the time being, but nobody is able guarantee how long they’ll be transacting.

 

If you’d like to look at extending a hedge or have any questions, please don’t hesitate to contact the team at pensfordteam@pensford.com or 704-887-9880.

 


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Pensford