LIBOR to SOFR transition

Preparing for an industry-wide shift from LIBOR

What is LIBOR?

The London Inter-Bank Offered Rate (LIBOR) is an industry interest rate benchmark which has been used by international and U.S. banks for decades, including First Financial. LIBOR is used as the basis for interest rates for a variety of business lending solutions and mortgages.

Why is LIBOR being phased out, and how does it impact me?

The U.K. and U.S. regulators, as well as The Alternative Reference Rates Committee (ARRC), are calling for the industry to phase out LIBOR. Please note, this announcement and transition only affects loans tied to LIBOR. If you have a loan priced using Prime, Treasury, etc. there will be no impact.

Although LIBOR won’t be phased out until mid-2023, First Financial began working on a transition plan in 2019. If you currently have a loan tied to LIBOR, your First Financial Bank Relationship Manager will contact you to amend your current lending agreements, if necessary. We want to ensure a seamless transition to a new index in mid-2023.

What will replace LIBOR?

The Alternative Reference Rates Committee (ARRC), a group of private-market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from U.S. dollar (USD) LIBOR to a more robust reference rate, has formally recommended the alternative, Secured Overnight Financing Rate (SOFR). Following this recommendation, First Financial began pricing new credit obligations using Term SOFR Index in Q4 2021 and will work to transition existing loans, if necessary, to Term SOFR by mid-2023.

What is the timeline?

July 2017

FCA announces the industry will transition away from LIBOR.
December 2019

First Financial started including LIBOR fallback language in all new loans and any renewing loans.
October 2020

First Financial began ISDA Swap Protocol and started including LIBOR fallback language in all new swap transactions.
March 5, 2021

ICE Benchmark Administration and FCA announced cessation of certain LIBOR indexes.
May – December 2021

First Financial will complete amendment process for addition of fallback language to existing portfolio loans.
Fourth quarter 2021

Began pricing new credit obligations using Term SOFR Index.
June 30, 2023

USD LIBOR Overnight, 1, 3, 6 and 12-month LIBOR will cease.
June 30, 2023

Migration of all LIBOR-based loans and other investments away from LIBOR to Term SOFR Index must be complete.

Frequently asked questions

LIBOR is an interest-rate which has historically been a benchmark for unsecured money market funding, derivatives, loans, bonds, etc. and is used by many large international and US banks, including First Financial Bank.

Regulators including the Alternative Reference Rates Committee are calling for the finance industry to move away from LIBOR. There are a few factors for this move including limitations in LIBOR as a benchmark rate along with concerns about the stability of LIBOR in a stressed market.

SOFR differs in its construction from LIBOR, given that it is a secured-overnight rate, while LIBOR is a term, unsecured rate. SOFR is calculated based on a larger amount of underlying transactions, averaging over $1 trillion in daily transactions in 2020. In contrast, LIBOR reflects the funding costs of sixteen panelist banks.

Due to the extensive use of USD LIBOR, corporations, issuers, investors, asset managers, financial products service providers and large financial institutions may all experience some impact. This is a market-wide transition, affecting all major financial institutions.

New loans will no longer be tied to LIBOR by the end of 2021 and current loans will convert by mid-2023.

A team has been working since 2019 to determine a plan to guide the bank through this change. We are now executing this plan and will be contacting clients over the coming months to amend any current lending products utilizing LIBOR.

Our team identified loans that are impacted by this change. Your Relationship Manager will be reaching out to you to walk through any impacts and how First Financial will help manage through this change.

We began using Term SOFR for new production starting in the fourth quarter of 2021.

LIBOR-based loans with maturity dates prior to June 2023 will transition to Term SOFR at time of renewal. Loans with maturity dates in June 2023 or beyond will convert to Term SOFR in the first half of 2023. Your Relationship Manager will be in touch.