Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Alerts
    4. “Synthetic LIBOR” — What is it?

      Alerts

    Alert / Corporate Trust

    “Synthetic LIBOR” — What is it?

    Oct 29, 2020

    LinkedInX (Twitter)EmailCopy URL

    By Erik Schneider

    A short explanation what it is and why it may not be the silver bullet solution for legacy LIBOR contracts.

    DOWNLOAD

    PDF: Synthetic LIBOR

    A new term, “synthetic LIBOR,” has come into usage of late, sounding possibly like a knight in shining armor to save us from the pains of the forthcoming LIBOR transition. [1] However, “synthetic LIBOR” is neither synthetic nor will it likely be the rate that the term “LIBOR” has defined since it was first used in 1986. As often as the new term “synthetic LIBOR” is mentioned, its exact meaning is rarely explained. Here is an explanation.

    The term began circulating in the leveraged loan and floating rate bond markets after the UK government announced in late June 2020 that it intends to amend the UK regulations of benchmark interest rates to give the Financial Conduct Authority (“FCA”) enhanced powers, including the power to select a new calculation methodology to any benchmark. [2] This includes the power to direct the administrator of LIBOR to change the methodology of LIBOR if the FCA determines that the current LIBOR methodology (i.e., polling of panel banks) is no longer representative of the market and if it would be both more appropriate and feasible to change to an alternative methodology. This new methodology would result in a new interest rate being published as the “screen rate” instead of LIBOR. In other words, the Intercontinental Exchange intends to publish a new rate on the same screen and in the same location on the screen where it had previously published LIBOR.

    However, it is important to understand that, as envisioned by the FCA, this new rate would not replicate LIBOR through some synthetic calculation. Rather, in the accompanying FAQs [3] the FCA explains that the new methodology would follow the market consensus that emerges on how to calculate fair alternatives to LIBOR. For most currencies, this will be a risk-free rate chosen by the applicable LIBOR currency area, adjusted for the relevant term of the contract, and with a fixed credit spread adjustment added. In other words, for the USD LIBOR market, “synthetic LIBOR” would likely be SOFR plus a modifier.

    The FCA’s stated goal for such a “synthetic LIBOR” is to provide an additional tool that might facilitate the transition of certain so-called “tough legacy” LIBOR contracts. [4] The FCA and other regulatory authorities across the globe continue to strongly urge market participants to focus on proactively amending financial contracts that use LIBOR in advance of the rapidly approaching deadline of December 31, 2021.


    1. LIBOR is not expected to be published commencing in 2022 based on the FCA announcement in July 2017 that it will no longer compel or seek to persuade participant banks to submit the rates used to calculate LIBOR after December 31, 2021. That announcement is available here. [Back to reference]
    2. See Financial Services Regulation Statement made on 23 June 2020. [Back to reference]
    3. See Benchmarks Regulation—proposed new powers. [Back to reference]
    4. See “FCA statement on planned amendments to the Benchmarks Regulation,” (June 23, 2020). [Back to reference]

    Practices

    Corporate Trust

    Insights And Happenings

    • Alert

      Can an Indenture Trustee bring legal action to exercise remedies against fraudulent transfer before an Event of Default has occurred under the Indenture? This New York court says no!

      Oct 29, 2020
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved