LIBOR – The Real Estate Roundtable

Fed Adopts SOFR as Fallback Benchmark Rate to Replace LIBOR on Certain Legacy Contracts

Posted on December 23, 2022October 27, 2023 by Trey Jackson

The Federal Reserve Board on Dec. 16 adopted SOFR (Secured Overnight Financing Rate) as the fallback benchmark rate to replace LIBOR (London Interbank Offered Rate) in certain financial contracts after the use of LIBOR expires on June 30, 2023. (Federal Register notice and Bloomberg Law, Dec. 16)

LIBOR to SOFR

LIBOR was the dominant reference rate used in recent decades for financial contracts—including commercial real estate debt, mortgages, student loans and derivatives—worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021.)
The Fed’s action this month implements a final rule from the Adjustable Interest Rate (LIBOR) Act (H.R. 4616)—passed by Congress in March to provide a uniform, nationwide solution for so-called tough legacy contracts that do not have clear and practicable provisions for replacing LIBOR. (Roundtable Weekly, March 11, 2022)
The Real Estate Roundtable and 17 national trade groups submitted letters in 2021 on April 14 and July 27 to policymakers in support of measures to address “tough legacy” LIBOR-based contract issues. (Roundtable Weekly, Dec. 10, 2021)

Final LIBOR Rule

Libor transition to SOFR image

The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the LIBOR Act. These contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate “fallback” provisions that would replace LIBOR with a practicable replacement benchmark rate. (Fed Reserve Board’s memo, Dec. 2 and Fed news release, Dec. 16)
The final rule also restates safe harbor protections contained in the LIBOR Act for market participants who need to switch existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments before the replacement date on June 30, 2023. (Federal Register notice on LIBOR)

The LIBOR transition will be among the issues discussed during The Roundtable’s Real Estate Capital Policy Advisory Committee’s (RECPAC) next meeting on Jan. 24 in Washington, DC during The Roundtable’s State of the Industry Meeting.

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FASB Approves Two-Year Extension for Transitioning LIBOR Contracts to Alternative Benchmark

Posted on October 14, 2022October 27, 2023 by Trey Jackson

The Financial Accounting Standards Board (FASB) recently voted to extend accounting relief to companies working to transition financial contracts from the London Interbank Offered Rate (LIBOR) benchmark to an alternative benchmark such as the Secured Overnight Financing Rate (SOFR). (Wall Street Journal, Oct. 5)

Transition Timing

LIBOR was the dominant reference rate used in recent decades for financial contracts—including commercial real estate debt, mortgages, student loans and derivatives—worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021.
The FASB relief allows companies until the end of 2024 to update or renegotiate Libor-backed loans. Companies that change the reference rate—as opposed to a more substantive alteration such as extending the loan’s maturity—will not be required to record a new loan. (UHY, Oct. 6)
The two-year, optional extension from Dec. 31, 2022 to Dec. 31, 2024 aims to help banks and borrowers transition LIBOR-based loans—including legacy “tough legacy” contracts.
Banks can continue using LIBOR in U.S. dollars and other currencies on existing loan contracts through June 2023. U.S. banks stopped issuing new financial contracts using LIBOR at the end of last year. (Wall Street Journal, June 7)

LIBOR to SOFR

Libor transition to SOFR image

The Federal Reserve and other regulators prefer banks and borrowers use the alternative benchmark SOFR. Companies are considering using two versions: overnight SOFR, administered by the Federal Reserve Bank of New York—and term SOFR, which benefits companies that borrow or lend in one-, three- or six-month periods. (NYS Society of CPAs, Oct. 6)
The Wall Street Journal reported that federal regulators prefer a version of SOFR because of its stability, as opposed to credit-sensitive alternatives such as the Bloomberg Short Term Bank Yield Index.

Legislative Support

Separately, Congress passed the Adjustable Interest Rate (LIBOR) Act (H.R. 4616) in March to provide for an orderly transition of debt contracts away from LIBOR, as part of an “omnibus” bill to fund the government. (Roundtable Weekly, March 11)
The Real Estate Roundtable and 17 national trade groups submitted letters in 2021 on April 14 and July 27 to policymakers in support of measures to address “tough legacy” LIBOR-based contract issues. (Roundtable Weekly, Dec. 10, 2021)

The LIBOR transition will be among the issues for discussion during The Roundtable’s Real Estate Capital Policy Advisory Committee’s (RECPAC) next meeting on Nov. 2 in New York City.

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The Fed Requests Comments on Proposal to Implement LIBOR Transition

Posted on July 23, 2022October 27, 2023 by Trey Jackson

The Federal Reserve Board on July 19 invited comment on a proposal that implements the Adjustable Interest Rate (LIBOR) Act, which Congress enacted last year. The LIBOR Act provides a safe harbor for market participants who need to switch existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments before LIBOR reaches its final replacement date on June 30, 2023. (The Fed’s Notice of Proposed Rulemaking, July 19 and Roundtable Weekly, March 11)

LIBOR and CRE

LIBOR, formerly known as the London Interbank Offered Rate, is the interest rate benchmark that was the dominant reference rate used in recent decades and remains in extensive use today in outstanding financial contracts — including commercial real estate debt, mortgages, student loans and derivatives — worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021)

The LIBOR Act also provides that all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced by the Secured Overnight Financing Rate (SOFR).

The Real Estate Roundtable and 17 national trade groups submitted letters last year on April 14 and July 27 to policymakers in support of measures to address “tough legacy” contracts during the transition away from LIBOR. (Roundtable Weekly, Dec. 10, 2021)

What’s Next

The Federal Reserve is working to mitigate potential risks and promote a smooth global transition away from LIBOR with both domestic and foreign supervisors. The Fed has emphasized the importance of preparation and transitioning to the market to ensure that supervised institutions can transition away from LIBOR. (The Fed Libor Transition webpage)

Comments on the Fed’s Notice of Proposed Rulemaking will be accepted for 30 days after publication in the Federal Register.

The Roundtable welcomes comments from its members on the proposed rulemaking and plans to work with its Real Estate Capital Policy Advisory Committee (RECPAC) on a response. For any questions, please contact The Roundtable’s Senior Vice President Chip Rodgers or call 202-639-8400.

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Final IRS Regulations Reduce Tax Risks When Replacing LIBOR With Alternative Benchmarks

Posted on January 8, 2022October 27, 2023 by Trey Jackson

The IRS on Dec. 30 issued final regulations clarifying how parties can replace the London Interbank Offered Rate (LIBOR) as a reference rate in mortgages and other financial contracts without triggering negative tax consequences. The Real Estate Roundtable offered extensive input and comments during the Treasury Department’s LIBOR regulatory review.

LIBOR Transition, Roundtable Comments & Tax Guidance

LIBOR is currently used in outstanding financial contracts worth an estimated $223 trillion, including commercial real estate debt, mortgages, student loans and derivatives. (Roundtable Weekly, July 30)
Financial regulators are phasing out LIBOR in its current form following serious cases of manipulation.
The anticipated replacement of LIBOR in existing financial contracts poses a potential tax problem – avoiding a deemed taxable “exchange” of the contract if the replacement index is viewed as “significantly modifying” the interest rate or yield of the existing contract.
In June 2019, Roundtable President and CEO Jeffrey DeBoer wrote to Treasury officials and emphasized, “… addressing the tax issues associated with the transition away from LIBOR is critical to the stability of financial markets, the real estate industry, and the overall economy.” (Roundtable LIBOR letter, June 6, 2019)
The Roundtable letter offered a suggested framework for tax guidance that would clarify when a replacement rate is not considered a significant modification. The IRS issued favorable proposed rules shortly thereafter, in October 2019.
The final IRS regulations provide bright-line rules for determining when replacement of LIBOR with an alternative rate in a contract qualifies as a “covered modification,” which is not treated as a taxable exchange of property under the tax code. (Federal Register, Guidance on the Transition From Interbank Offered Rates to Other Reference Rates; ABA Banking Journal, Jan. 3)
The final tax rules generally are effective for contract modifications made on or after March 7, 2022.

The Roundtable’s initial recommendations were developed with the assistance of an industry task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte.

Tough Legacy Contracts

Another significant LIBOR issue is a safe harbor for market participants seeking to transition to a replacement benchmark for debt instruments, such as the Secured Overnight Financing Rate (SOFR). Some difficult LIBOR-based contracts – referred to as “tough legacy” – have insufficient fallback language or include provisions that cannot be amended. (Roundtable Weekly, Dec. 10, 2021)
Legislation passed by the House of Representatives on Dec. 8, 2021 would protect trillions in “tough legacy” contracts that use LIBOR as a reference rate for financial transactions. The bill (H.R. 4616) provides a safe harbor for market participants and includes a federal preemption.
The House bill also provides that when LIBOR reaches its final replacement date on June 30, 2023, all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced with SOFR.

The Roundtable and 17 national trade groups previously submitted letters this year on April 14 and July 27 to House Financial Services Committee policymakers in support of legislation to address “tough legacy” contracts during the transition away from LIBOR.

The Roundtable and a broad coalition of industry groups have long-supported measures to ensure that the transition away from the LIBOR reference rate does not cause market disruptions or diminish credit capacity. (Industry Coalition letter, Dec. 7, 2021 and Bloomberg, Dec. 8, 2021)

LIBOR transition issues will be discussed during The Roundtable’s Jan. 25-26 virtual State of the Industry Business Meeting and at scheduled TPAC and RECPAC meetings.

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House Passes Legislation to Transition Away From LIBOR With Solution for “Tough Legacy” Contracts

Posted on December 10, 2021October 27, 2023 by Trey Jackson

Libor transition to SOFR image

Legislation passed by the House of Representatives on Dec. 8 would protect trillions in “tough legacy” contracts that use the London Interbank Offered Rate (LIBOR) as a reference rate for financial transactions. The Real Estate Roundtable and a broad coalition of industry groups have long-supported this protective measure. (Industry Coalition letter, Dec. 7 and Bloomberg, Dec. 8)

LIBOR and CRE

House lawmakers approved the Adjustable Interest Rate (LIBOR) Act (H.R. 4616) by a vote of 415-9, sending the bill to the Senate as the use of LIBOR faces retirement in 2023. Banks will not be able to issue new loans or other financial contracts using LIBOR as of Jan. 1, 2022. (Wall Street Journal, Dec. 3)
LIBOR is currently used in outstanding financial contracts – including commercial real estate debt, mortgages, student loans and derivatives – worth an estimated $223 trillion. (Roundtable Weekly, July 30)

Tough Legacy Issues Addressed

The House bill includes provisions that address the transition of the most troublesome LIBOR-based contracts – referred to as “tough legacy” – to a replacement benchmark when LIBOR sunsets. These contracts have insufficient fallback language or include provisions that cannot be amended.
The bill also provides a safe harbor for market participants switching existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments, such as the Secured Overnight Financing Rate (SOFR). The bill also includes a federal preemption.
The Real Estate Roundtable and 17 national trade groups also previously submitted letters April 14 and July 27 to House Financial Services Committee policymakers in support of legislation to address “tough legacy” contracts during the transition away from LIBOR.

The House bill provides that when LIBOR reaches its final replacement date (June 30, 2023), all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced with SOFR.

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House Financial Services Committee Approves Bill to Transition Away from LIBOR

Posted on July 30, 2021October 27, 2023 by Trey Jackson

Legislation advanced this week by the House Financial Services Committee would help smooth the transition away from the London Interbank Offered Rate (LIBOR) as a reference rate for financial contracts. (House Financial Services Committee markup documents and videos, July 28 | Rep. Brad Sherman (D-CA), above)

Why It Matters

Libor is currently used in many outstanding financial contracts – including commercial real estate debt, mortgages, student loans and derivatives – worth an estimated $223 trillion. (Committee memo, page 6)
The use of LIBOR for new contracts is scheduled to terminate at the end of 2021. Additionally, all LIBOR maturities will stop in June 2023, although some will cease at the beginning of next year.
The Adjustable Interest Rate (LIBOR) Act of 2021 was sponsored by Rep. Brad Sherman (D-CA) – chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets. The bill would authorize the Federal Reserve to issue rules to “establish a clear and uniform process on a nationwide basis for replacing LIBOR in existing contracts,” with replacement benchmark rates. An amendment to the legislation was also approved during the Financial Services Committee July 29 markup.
The bill would also provide a safe harbor for market participants switching existing LIBOR-referencing financial contracts over to a replacement benchmark for debt instruments. This would apply to instruments such as floating-rate bonds, which require all parties to agree to terms that cannot easily be changed. The bill also includes a federal preemption.
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell recently told the Financial Stability Oversight Council that Congress urgently needed to pass legislation to allow for a smooth transition away from LIBOR. (Bloomberg, June 11)
Additionally, the Fed’s Alternative Reference Rates Committee (ARRC) yesterday endorsed use of Secured Overnight Financing Rate (SOFR) Term Rates, a forward-looking version of the LIBOR alternative for financial instruments. (Bloomberg, July 29)
As Federal Reserve Vice Chair for Supervision Randal Quarles continues to encourage the termination of the use of LIBOR by year-end, the House bill and the ARRC endorsement of SOFR Term Rates are intended to provide market participants with the tools they need to transition away from LIBOR.

Roundtable Support

The Real Estate Roundtable and 17 national trade groups on July 27 submitted a letter to House Financial Services Committee policymakers in support of legislation to address “tough legacy” LIBOR contracts during the transition away from the benchmark. (Joint Trades’ Letter on Libor)
The joint letter noted that currently, there is no realistic ability to modify legacy contracts that cannot be converted to a non-LIBOR rate or be amended with adequate fallback language before all LIBOR maturities are scheduled to stop in June 2023.
The coalition letter stated, “A state-by-state piecemeal approach does not provide the necessary comprehensive protections that is achievable at the federal level given importance of the issue and the very limited time remaining until LIBOR’s end in less than two years.”

The letter also commended Rep. Sherman and the Committee for providing a meaningful legislative solution in support of the LIBOR transition by providing fair, equitable and consistent treatment for all tough legacy contracts.

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Financial Regulators Call for Federal Legislation to Ease LIBOR Transition

Posted on April 16, 2021October 27, 2023 by Trey Jackson

Rep-Brad-Sherman--Chair-x475w

Officials from the Fed and other top federal financial regulatory agencies testified on April 15 before a House Financial Services subcommittee that they support federal legislation to transition away from using the London Interbank Offered Rate (Libor) as an interest rate benchmark for US dollar contracts. (Subcommittee hearing video and background memorandum)

Libor Deadlines

Libor is currently used in many outstanding financial contracts – including mortgages, student loans and derivatives – worth trillions of dollars.
Using LIBOR for new contracts is scheduled to end at the end of 2021. Additionally, all Libor maturities will stop in June 2023, although some will cease at the beginning of next year.
Rep. Brad Sherman (D-CA), photo above – who chairs the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets that held the hearing – has circulated draft legislation of a proposal entitled the Adjustable Interest Rate (LIBOR) Act of 2021 to smooth the transition away from Libor to the Secured Overnight Financing Rate (SOFR). (Pensions & Investments, April 16)
Lawmakers from both parties also voiced their support for federal Libor legislation during the hearing. Sherman stated that the need for federal action on Libor would test Congress to see if it can pass “necessary legislation that isn’t Democrat, isn’t Republican.” (CQ, April 15)

Roundtable Support

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The Real Estate Roundtable and 17 national trade organizations on April 14 sent a letter of support for federal Libor legislation to leadership of the House Financial Services Committee.
The letter notes that the trillions of dollars of outstanding contracts, securities, and loans that use LIBOR for their interest rates do not have appropriate contractual language to address a permanent cessation of LIBOR.
The coalition states in their letter that “Ineffective or ambiguous fallback provisions will result in uncertainty, litigation, and harm to consumers, businesses, and investors. Only federal legislation can uniformly address all 50 states, and only federal legislation can address issues such as the need for narrow relief from certain federal laws.”
On April 6, 2021, New York Governor Andrew Cuomo signed the first state-passed legislation (Senate Bill 297B/Assembly Bill 164B) intended to reduce risks associated with the transition away from LIBOR. Since New York law governs many of the financial products and agreements referencing LIBOR, the legislation will provide legal clarity for these contracts and will lessen the burden on New York courts. (Pensions & Investments, March 25)

The American College of Real Estate Lawyers recently published a detailed overview of the Libor transition – “LIBOR’S Endgame: a Brief Pause, Not a Reprieve; a Safe Harbor, but a New Penalty” – by Joe Forte (Senior Legal Councel, AmTrust Title), who is a member of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC).

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Regulators Urge Banks to Cease Use of LIBOR for New Contracts by End of 2021 as Benchmark Rate is Scheduled to Sunset on Legacy Contracts in June 2023

Posted on December 5, 2020October 27, 2023 by Trey Jackson

US and UK regulators are urging banks using the London Interbank Offered Rate (LIBOR) as a benchmark interest rate to stop writing new LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before use of the rate sunsets in June 2023. (Federal Reserve and Wall Street Journal, Nov. 30)

The UK-based ICE Benchmark Administration (IBA) announced it will consult in early December on its intention to cease US$ LIBOR. IBA intends to eliminate, subject to confirmation, one week and two month US$ LIBOR settings at the end of 2021. (Financial Conduct Authority, Dec. 4)

LIBOR is used as a reference rate in an estimated $200 trillion of financial contracts, including $1.3 trillion of commercial real estate loans. UK financial authorities are phasing out LIBOR in response to manipulation concerns.

The Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on Nov. 30 released a joint statement supporting the proposal and explaining that the June 30, 2023 proposed LIBOR cessation date would allow time for “legacy contracts”—USD LIBOR transactions executed before January 1, 2022—to mature.

The joint statement also notes, “Failure to prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks’ safety and soundness.”

Federal Reserve Vice Chair for Supervision Randal K. Quarles on Nov. 30 said, “Today’s plan ensures that the transition away from LIBOR will be orderly and fair for everyone—market participants, businesses, and consumers.”

“These announcements represent critical steps in the effort to facilitate an orderly wind-down of USD LIBOR,” said John Williams, President of the Federal Reserve Bank of New York and Co-Chair of the Financial Stability Board’s Official Sector Steering Group. “They propose a clear picture of the future, to help support transition planning over the next year and beyond.”

The Fed has urged banks to prepare for a transition away from LIBOR to the Secured Overnight Financing Rate, which will use rates that investors offer for bank securities such as loans and assets backed by bonds, instead of relying on bank quotes.

The US Treasury Department on October 9, 2019 released proposed regulations to clarify the tax consequences of replacing LIBOR in existing financial contracts, including real estate loans. The proposed rules largely align with Roundtable recommendations submitted in June 2019. (Roundtable Weekly, June 7, 2019)

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Treasury Unveils Proposed Regulations to Resolve Tax Questions Related to LIBOR Cessation

Posted on October 11, 2019April 25, 2024 by Trey Jackson

The Treasury Department on Monday released proposed regulations to clarify the tax consequences of replacing the expiring London Inter-bank Offered Rate (LIBOR) in existing financial contracts, including real estate loans. The proposed rules largely align with Roundtable recommendations submitted over the summer. (Roundtable LIBOR letter, June 6 and Roundtable Weekly, June 7)

LIBOR is used as a reference rate in an estimated $200 trillion of financial contracts, including $1.3 trillion of commercial real estate loans. In response to concerns regarding manipulation of LIBOR, UK financial authorities are phasing it out; LIBOR is expected to cease operation as working interest rate index by 2021.
The replacement of LIBOR in existing agreements presents important tax questions. “If the terms of a debt instrument are significantly modified, for Federal income tax purposes there is a deemed exchange of the old debt for a new (modified) debt instrument,” wrote Roundtable President and CEO Jeffrey DeBoer in the organization’s June 6 comment letter.
Without relief, this deemed exchange could trigger the recognition of taxable gain or loss for the lender, or debt discharge income for the borrower. “Moreover, the tax consequences of the deemed exchange can arise without generating actual cash to pay any ensuing tax liability,” continued DeBoer.
As The Roundtable had recommended, the Treasury’s proposed regulations give borrowers and lenders the flexibility they need to replace LIBOR with virtually any other index that reflects objective changes in the cost of borrowing money – such as a broad index of Treasury or corporate borrowing rates – in addition to a list of rates suggested by various regulators.
Don Susswein (RSM), a member of the Roundtable’s Tax Policy Advisory Committee (TPAC) and one of the architects of The Roundtable’s comments, noted, “The key to the flexibility is a reasonable safeguard to ensure that the parties are acting in good faith primarily to preserve their original deal—not modifying it to compensate for changed circumstances.”
As a safeguard to prevent potential abuse, the proposed regulations require that the fair market value of the modified instrument be “substantially equivalent” to its value before modification.
Another key TPAC member, Joe Forte (Sullivan & Worcester) said, “It is clear that the hesitation of many market participants to transition from LIBOR to SOFR has been uncertainty concerning the tax and accounting treatment of the rate modification. Following on FASB’s Exposure draft on reference rate reform last month, the new Treasury/IRS guidance addressing the tax consequences of rate modification of cash contracts and derivatives has proposed two safe harbors similar to those The Roundtable proposed.”
“The Treasury and IRS deserve high marks for proposing a sound, rational framework early in the LIBOR transition to address with these challenging issues and remove tax uncertainty,” said DeBoer.

Comments on the proposed rules are due by November 25, 2019. Taxpayers may rely immediately on the proposed rules when evaluating the tax consequences of an alteration of the terms of a loan or other contract, provided the taxpayer consistently applies the rules.

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Roundtable Urges Treasury to Clarify Tax Consequences of Transition Away from LIBOR as Reference Rate

Posted on June 7, 2019October 27, 2023 by Trey Jackson

The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate. Over $200 trillion of LIBOR contracts are outstanding, including roughly $1.3 trillion of commercial real estate debt. (Roundtable LIBOR letter, June 6)

The United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced in 2017 that it is phasing out the global borrowing index by the end of 2021. LIBOR will need to be replaced in both new agreements and innumerable existing legacy contracts.
Several factors may necessitate or accelerate parties’ adoption of alternative reference rates on existing contracts well before the end of 2021. To facilitate the transition, the Federal Reserve Bank of New York in 2018 began publishing an alternative U.S. benchmark to work alongside LIBOR – the Secured Overnight Financing Rate (SOFR). (See: A User’s Guide to SOFR and SOFR: A Year in Review)
However, several issues may be contributing to the reluctance of market participants to use SOFR, including the absence of necessary internal infrastructure to support its accounting and trading, and the lack of tax guidance.
Roundtable President and CEO Jeffrey DeBoer noted in the comment letter, “If the terms of a debt instrument are significantly modified, for Federal income tax purposes there is a deemed exchange of the old debt for a new (modified) debt instrument.” Without relief, this deemed exchange could trigger the recognition of taxable gain or loss for the lender, or debt discharge income for the borrower.
“Moreover, the tax consequences of the deemed exchange can arise without generating actual cash to pay any ensuing tax liability,” wrote DeBoer.

Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR.
The Roundtable’s June 6 comments recommend that a safe-harbor rule confirm that a replacement index or formula identified by regulators, broad industry groups, or similar objective sources-or by the parties themselves in good faith-is not considered an alteration or modification of the original instrument. The Roundtable letter states, “Instead, the replacement should be treated for Federal tax purposes as a continuation of the instrument’s original terms.”
This week, Randal Quarles – the Fed’s vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR: “I believe that the ARRC has chosen the most viable path forward and that most will benefit from following it, but regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients …. With only two and a half years of further guaranteed stability for LIBOR, the transition should begin happening in earnest.” (Bloomberg, June 3)
The Wall Street Journal reported last July that companies were adopting SOFR sparingly – despite regulators urging banks and traders to stop launching new Libor-based contracts ahead of the 2021 deadline. (WSJ, July 12 and Roundtable Weekly, July 13, 2018)

The Roundtable letter was developed by a task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte. On June 11, at The Roundtable’s Annual Meeting in Washington DC, Joseph Forte will lead a RECPAC discussion on real estate’s concerns with the LIBOR transition.