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

  • October 14, 2022
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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

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  • 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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