Graphic displaying financial data points
Graphic displaying financial data points

LIBOR to Term SOFR

Preparing for an industry-wide shift from LIBOR

What is LIBOR?

The London Inter-Bank Offered Rate (LIBOR) is an industry interest rate benchmark which has been used by international and U.S. banks for decades, including First Financial. LIBOR is used as the basis for interest rates for a variety of business lending solutions and mortgages.

Why is LIBOR being phased out, and how does it impact me?

The U.K. and U.S. regulators, as well as The Alternative Reference Rates Committee (ARRC), are calling for the industry to phase out LIBOR. Please note, this announcement and transition only affects loans tied to LIBOR. If you have a loan priced using Prime, Treasury, etc. there will be no impact.

Clients with loans tied to LIBOR have most likely heard from their First Financial Relationship Manager to discuss options. They continue to work with clients to amend LIBOR based loans, where possible, to avoid conversion-related impacts when LIBOR ends mid-2023.

What will replace LIBOR?

The overwhelming majority of the financial industry has chosen the Term Secured Overnight Financing Rate (SOFR). First Financial began pricing new credit obligations using Term SOFR in October 2021 and is working to transition existing loans to Term SOFR by mid-2023.

What is Term SOFR?

Term SOFR is a secured-overnight rate that is forward looking. As a result, it most closely resembles LIBOR. Term SOFR rates are published and can be viewed at cmegroup.com.

What is the transition timeline?

July 2017

FCA announced the industry will transition away from LIBOR.
December 2019

First Financial started including LIBOR fallback language in all new loans and any renewing loans.
October 2020

First Financial began ISDA Swap Protocol and started including LIBOR fallback language in all new swap transactions.
March 5, 2021

ICE Benchmark Administration and FCA announced cessation of certain LIBOR indexes.
May – September 2021

First Financial began amendment process for addition of fallback language to existing portfolio loans.
October 2021

Began pricing new loans using Term SOFR Index.
Early 2022

Majority of industry moves to Term SOFR Index.
June 30, 2023

USD LIBOR Overnight, 1, 3, 6 and 12-month LIBOR will cease. Migration of all LIBOR-based loans and other investments away from LIBOR must be complete.

Frequently asked questions

LIBOR is an interest rate which has historically been a benchmark for unsecured money market funding, derivatives, loans, bonds, etc. and is used by many large international and US banks, including First Financial Bank.

Regulators including the Alternative Reference Rates Committee are calling for the finance industry to move away from LIBOR. There are a few factors for this move including limitations in LIBOR as a benchmark rate, along with concerns about the stability of LIBOR in a stressed market.

Term SOFR is a secured-overnight rate that is forward looking. As a result, it most closely resembles LIBOR. Term SOFR rates are published and can be viewed at cmegroup.com.

Term SOFR differs in its construction from LIBOR, given that it is a secured-overnight rate, while LIBOR is a term, unsecured rate. Term SOFR is derived from SOFR, which is calculated based on a larger amount of underlying transactions, averaging over $1 trillion in daily transactions in 2020. In contrast, LIBOR reflects the funding costs of sixteen panelist banks.

Due to the extensive use of USD LIBOR, corporations, issuers, investors, asset managers, financial products service providers and large financial institutions may all experience some impact. This is a market-wide transition, affecting all major financial institutions.

Starting in October 2021, First Financial began pricing new loans using Term SOFR. For existing loans tied to LIBOR, Relationship Managers are working with clients to discuss options and make amendments prior to LIBOR ending in mid-2023.

Relationship Managers have been reaching out to affected clients to walk through options and amend current loans. They will walk through ways to avoid possible impacts of this transition. If you have questions regarding any of your loans, please contact your Relationship Manager.

LIBOR-based loans with maturity dates prior to June 2023 will transition to Term SOFR, or another agreed upon index, at time of renewal. Loans with maturity dates in June 2023 or beyond will have an amendment in place to convert to Term SOFR in the first half of 2023, or earlier. Your Relationship Manager will be reaching out over the next several months to discuss the details of moving away from LIBOR.

Per industry requirements, both the loan and the swap will transition during the month of June. Your Relationship Manager can walk you through the details.