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Peter E. Fisch and Mitchell L. Berg Peter E. Fisch and Mitchell L. Berg

The London Interbank Offered Rate (LIBOR) and other interbank offered rates, used as reference rates in variable-rate loans, derivatives and other financial instruments, are expected to be discontinued at the end of 2021. In the United States, despite lingering uncertainty, LIBOR likely is going to be replaced by the Secured Overnight Financing Rate (SOFR). U.S. Dollar (USD) LIBOR is commonly used in floating-rate commercial real estate loan agreements as a benchmark index, putatively reflecting the lender’s cost of funds, with the borrower paying interest at a rate calculated as USD LIBOR plus a margin or “spread” reflecting market conditions and the price of the borrower’s credit risk to the lender. Whereas LIBOR reflects the current market for unsecured wholesale term lending to banks in a specific currency and for various terms in the London interbank market,[1] SOFR reflects the retrospective, actual cost of borrowing cash overnight by means of repurchase (“repo”) agreements[2] secured by U.S. Treasury securities.[3]

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Patricia Kane

Patricia Kane is the Courts Editor for the New York Law Journal.

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