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LIBOR Transition Roadmap

This page will inform you of the anticipated transition from the London Interbank Offered Rate (LIBOR) to an alternative benchmark interest rate by the end of 2021. We will update this page with additional transition details and answers to your most common questions as they become available. 

We know you have questions. You've come to the right place.

What is LIBOR?

LIBOR reflects the cost of unsecured borrowing in the interbank market. It is a base rate used in variable rate products to calculate the interest rate.

Why is LIBOR being replaced?

The volume of interbank borrowing activity in this area has significantly reduced since the financial crisis that occurred in the 2008 through 2010 time frame. In turn, the low number of transactions on which the panel banks rely on to submit pricing for LIBOR are insufficient to form estimates. Consequently, the authorities that regulate LIBOR announced that by the end of 2021, they would no longer persuade panel banks to submit their rates into LIBOR. Without submissions from the panel banks, it may not be possible to create or publish LIBOR, and without LIBOR being published or LIBOR no longer representing a market index rate a replacement benchmark rate is needed. It is highly probably that is U.S. regulators may also not allow LIBOR to be used as a reference rate in financial instruments after 2021

What is the financial industry doing to replace LIBOR?

The Alternative Reference Rates Committee (ARRC) was established by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York to develop and produce alternative reference rates for LIBOR.

What is United Community Bank doing to prepare for the LIBOR transition?

United formed a committee in 2018 to proactively create a consistent and coherent plan to manage the transition into alternative reference rates for existing LIBOR based agreements prior to the end of 2021. As we manage the LIBOR transition (including for example, conducting an inventory of all of the products tied to LIBOR and reviewing our systems, contracts and internal processes for LIBOR exposure), we will continue to closely monitor the transition recommendations still being discussed by ARRC, our regulators and financial industry forums.

Our transition plan

Part of United’s transition plan will include the modification of variable rate agreements that rely on LIBOR and other rates that are based on LIBOR to calculate the agreement’s interest rate. The impact that the LIBOR transition will have on the bank and our customers will vary widely based on the types of services we provide. For example, we expect differences in the basis between LIBOR and the alternative reference rate that could impact the spread on the product.

There is also some uncertainty regarding the timing of when LIBOR will no longer be available or serve as a market rate index or when a replacement rate is put in place. Additionally, there will be differences between how LIBOR is reset compared to how an alternative rate may reset. 

Despite many changes that we know are coming and the apprehension and uncertainty you undoubtebly feel, we want to reassure you that our team is working diligently to find solutions and answers while we follow guidance from the Fed and ARRC.

We appreciate your patience as our team works to develop the right solutions to ensure the transition a long-term success.
 

Our goal, as always, is to provide you with the most seamless, simple and financially-beneficial experience possible, but there will likely be a number of changes you see over the next few months. Please know that we're all learning together as new information continues to be released, and we will do everything in our power to mitigate any negative impact. The reasons for any inconveniences you may encounter are outlined below: 

Adjusting our methods

This transition will impact our pricing models and risk frameworks. Your patience is very appreciated as we establish the best path forward. 

The economic impact

This transition might impact your bottom line as well as ours. We're in this together, and we will work to find the most optimal solution for all parties. 

Keeping you in the loop

We are committed to keeping you up-to-date on all developments during this transition. We will work hard to filter through new information as it becomes available and provide you with the most important updates. 

Getting our legal ducks in a row

Our team will work to ensure that your interest rate provisions are sufficiently updated in your LIBOR-based variable rate agreements so you can rest easy. 

Working on our workflow

Our LIBOR transition team is optimizing our workflows for a better experience for you, but also to create efficiencies in our internal workflows and processes. 

What you should do to prepare

We encourage you to take the following steps:
  • Review your existing loans, notes and derivatives that mature after 2021.
  • Appoint someone to monitor the LIBOR transition and assess the impact that the LIBOR transition will have on you.
  • Keep your accounting team and advisors up-to-date on the LIBOR transition, and enlist them to help you plan for changes in accounting and tax treatment for LIBOR-linked transactions.
  • Consider refinancing your LIBOR based loans. Borrowing at a fixed rate or against another floating interest rate index will help you avoid uncertainty. 
If you have any questions about this transition and how it may impact you and your financial situation, please do not hesitate to contact your banker. We are here for you during this time of uncertainty, and will work together with you to now and always.
 
We will update this page periodically if additional information and guidance becomes available.

Helpful Resources

Terms you should know

ARRC: Alternative Reference Rates Committee
This committee is responsible for overseeing and ensuring the transition from USD LIBOR is successful. It is comprised of a diverse group of leaders from some of the largest financial institutions and financial sector regulators. This group is endorsing SOFR as the successor to LIBOR. 

 

FCA: Financial Conduct Authority
A British body that regulates different markets, including the industry benchmarks published by IBOR. They exist to protect consumers, defend the integrity of the UK financial system, and promote productive competition. 

 

FSB: Financial Stability Board
An international body that is tasked with monitoring and recommending changes to the function of the global financial system.

 

IOSCO: International Organization of Securities Commissions
An international body that sets the global standard for the securities sector. This body is composed of securities regulators from around the world and aims to implement and promote adherence to international security standards. 

 

ISDA: International Swaps and Derivatives Association
An international body that facilitates effective risk management by fostering a safe and efficient derivatives market. They provide a foundation for many derivative transactions.

 

SOFR: Secured Overnight Financing Rate
A proposed successor to LIBOR backed by ARRC. This index measures the cost of borrowing overnight. This index is based on the largest volume of transactions of any U.S. money market and surpass those of LIBOR. U.S.

Last Updated July 7, 2020.