EXIM Statement on Transition from LIBOR (London Inter-Bank Offered Rate)

Page Last Updated: August 22, 2022

The London Inter-Bank Offered Rate, referred to as “LIBOR”, is a benchmark interest rate that has been used for many floating-rate loans, including EXIM-guaranteed and EXIM-insured transactions. Before 2022, it was the exclusive benchmark interest rate used by EXIM for such loans following post-default claim payments (known as “Special LIBOR”).

LIBOR is gradually being phased out. The publication of most USD (U.S. dollar-denominated) LIBOR tenors (including the three-month and six-month tenors, which are most frequently used in EXIM transactions) is expected to end on June 30, 2023. In anticipation of such phaseout, a group of private-market participants and banking and financial sector regulators, such as the Federal Reserve Board, the Federal Reserve Bank of New York, the U.S. Department of the Treasury, the U.S. Commodity Futures Trading Commission and the U.S. Office of Financial Research convened the Alternative Reference Rates Committee (“ARRC”) to help ensure a successful transition from USD LIBOR to a more robust reference rate. The ARRC recommended the Secured Overnight Financing Rate (“SOFR”), a secured rate based off Treasury transactions, as the replacement reference rate for USD LIBOR.

On October 20, 2021, the Board of Governors of the Federal Reserve System (“Fed Board”), the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), the National Credit Union Administration (“NCUA”), and the Consumer Financial Protection Bureau (“CFPB”) issued a joint statement (the “FFIEC Statement”) urging supervised entities to cease entering into new contracts that reference USD LIBOR by no later than December 31, 2021. The FFIEC Statement noted that entering into such contracts after such deadline “would create safety and soundness risks.” 

NEW EXIM TRANSACTIONS

Consistent with the FFIEC Statement, EXIM no longer issues loan guarantees or insurance that reference USD LIBOR to lenders regulated by the Fed Board, FDIC, OCC, or NCUA for any new contracts entered into after December 31, 2021.

EXIM expects that many new contracts (i.e., credit documents) will adopt “Term SOFR” (a forward-looking term rate based on SOFR) as a reference interest rate, and EXIM has already revised its credit documentation templates to provide for Term SOFR as the default reference rate. Term SOFR rates are publicly available here and EXIM transaction parties may be required to obtain a license to use Term SOFR. (Each transaction party must reach its own determination as to whether a license for use of Term SOFR is required.) EXIM will continue to consider other (i.e., non-Term SOFR) reference interest rates, where the transaction parties so prefer, on a case-by-case basis, just as such alternatives were an option under prior USD LIBOR-based EXIM-guaranteed or EXIM-insured financings. EXIM also revised its credit documentation templates to replace “Special LIBOR” with “Special Term-SOFR" for post-default, post-claim scenarios.

Certain non-bank lenders and financial institutions that are not subject to the supervisory guidance of the FFIEC Statement have historically used USD LIBOR for various EXIM-supported transactions. EXIM requires that all new contracts entered into after June 30, 2022, for EXIM-guaranteed or EXIM-insured transactions with such lenders use Term SOFR or another non-LIBOR reference rate preferred by the transaction parties. Any such non-Term SOFR reference rate remains subject to EXIM’s approval on a case-by-case basis. All such new contracts must include robust fallback provisions specifying an alternative reference rate upon the initial reference rate’s potential cessation. EXIM will regularly review its USD LIBOR replacement policy, which may evolve, especially as the June 30, 2023, final phase-out of USD LIBOR approaches. Accordingly, this website may be updated from time to time to reflect any such changes in EXIM’s USD LIBOR replacement policy.

New Export Credit Insurance Transactions (Financial Institution Buyer Credit Policies)

EXIM Financial Institution Buyer Credit (“FIBC”) policyholders should use a reference interest rate other than USD LIBOR for all new floating-rate loans. Parties should inquire with their representative in the Export Credit Insurance unit to address any USD LIBOR-related questions related to their FIBC policies. 

New Working Capital Guarantee Program / Supply Chain Finance Guarantee Program Transactions

Unlike the documentation used for EXIM medium- and long-term transactions, EXIM’s Working Capital Guarantee Program (“WCGP”) and Supply Chain Finance Guarantee Program (“SCFGP”) documents do not include references to “LIBOR”, “Special LIBOR” or “Reference Rate”. Participating lenders (i.e., the Delegated Authority Lender or Purchaser) negotiate interest rates and indices with the borrower and provide them to EXIM in their supporting loan documentation. The WCGP, SCFGP and the EXIM Loan Management System (ELMS) platform do not support new USD LIBOR-based transactions and lenders should use an alternate base rate index, such as Term SOFR, for all new and renewing floating-rate transactions. Lenders should ensure that any USD LIBOR-based WCGP or SCFGP transactions with maturity dates that extend beyond the USD LIBOR publication date include, or are amended to include, appropriate alternate base rate language.

New Medium-Term Insurance, Medium-Term Guarantee, and Long-Term Guarantee Transactions

For new medium-term insurance and medium-term guarantee transactions, EXIM requires the use of a reference interest rate other than USD LIBOR for all new floating-rate loans by lenders. The same applies for long-term guarantee transactions. EXIM has already updated its template credit agreements to include Term SOFR as its preferred reference rate (including as a replacement for “Special LIBOR” for medium- and long-term guarantees), although EXIM will continue to consider other reference interest rates if preferred by the relevant transaction parties.

Direct Loans (Any Term)

EXIM does not make floating-rate direct loans; therefore, the USD LIBOR transition is not applicable for these transactions.

LEGACY EXIM TRANSACTIONS

EXIM intends for all existing EXIM-guaranteed or EXIM-insured USD LIBOR-based transactions that mature after June 30, 2023 (“LIBOR Legacy Transactions”) to incorporate, whether by amendment to relevant credit documentation or by operation of law, benchmark replacements and any necessary conforming changes by no later than June 30, 2023.

EXIM previously incorporated the ARRC’s “amendment approach” reference rate fallback language in its credit documentation templates to replace both USD LIBOR and Special LIBOR with alternative reference rates. The ARRC’s amendment approach set out terms for determining a benchmark replacement, which may include Term SOFR, and required subsequent amendment of the relevant agreements to implement such benchmark replacement.

In addition, the federal Adjustable Interest Rate (LIBOR) Act (H.R. 2471, Div. U.)  enacted on March 15, 2022 (the “Federal LIBOR Law”) may apply to certain LIBOR Legacy Transactions. Generally, the Federal LIBOR Law provides for the automatic replacement of USD LIBOR reference rates with SOFR-based reference rates selected by the Fed Board in contracts containing no fallbacks or inadequate fallback mechanisms (often referred to as “tough legacy” contracts) and supersedes any domestic state law addressing USD LIBOR’s cessation, such as New York’s LIBOR legislation (NY State Senate Bill S297B). The Federal LIBOR Law also specifies credit adjustment spreads depending on the type of transaction and USD LIBOR tenor used in each transaction, provides for the adoption of conforming changes that may be required in connection with the new SOFR reference rate and provides a safe harbor for contracting parties with discretion to designate benchmark replacements to the extent they elect to use the Fed Board-selected SOFR-based reference rate. The Federal LIBOR Law will be further supplemented by regulations to be promulgated by the Fed Board by September 11, 2022 (draft regulations were released by the Fed Board for comment on July 19, 2022). Transaction parties remain free to opt out of the Federal LIBOR Law. Each EXIM-guaranteed lender, insured party, and borrower must review the USD LIBOR provisions of its EXIM transaction documents, consult with its legal counsel and determine for itself whether the Federal LIBOR Law applies to such documents. Even where the Federal LIBOR Law applies to a LIBOR Legacy Transaction, EXIM will work with its transaction participants if they nevertheless prefer to amend their transaction documents rather than rely upon the Federal LIBOR Law’s automatic USD LIBOR replacement provisions.

With respect to any non-USD LIBOR-based interest rate clauses in EXIM’s guaranteed loan agreements, EXIM will coordinate with its guaranteed lenders and impacted borrowers regarding the best approach to take.

EXIM strongly encourages LIBOR Legacy Transaction parties to consult with EXIM as soon as possible to ensure that any desired or necessary updates to the transaction documents can be implemented timely and efficiently.

EXIM will be periodically updating this website to give further guidance on the USD LIBOR transition as wider market developments occur. If you have questions or concerns about EXIM’s USD LIBOR transition, please contact us at Reference-Rate-Queries@exim.gov.