It should be reiterated that the inclusion in credit agreements of a “solidly wired” misleading language does not mean that the relevant loans refer to SOFR from the outset. On the contrary, such credits would continue to refer to LIBOR, but would be “solidly wired” to turn to the eventual replacement of the LIBOR credit market (likely the applicable SOFR rate) if the triggering events indicated are indicated without the majority lender having negative approval rights or other approval rights from the lender. Libor or the London Interbank Offered Rate is the underlying benchmark rate for the trillions of dollars of financial products, including loans, bonds and derivatives. There are less than 500 days left before libor`s scheduled end on December 31, 2021, and there is no indication that the COVID-19 pandemic will delay the end of LIBOR.  Credit agreements that contain a Canadian dollar offered rate (CDOR) interest rate option often contain comparable mechanisms of the “change approach”; Currently, unlike LIBOR, CDOR (which is based on transactions in the Canadian bank acceptance market) is not expected. Recent credit transactions have continued to relate to LIBOR, in addition to the modification mechanisms, which plan to make changes in the future in order to implement the possible successor to LIBOR and to address the adjustment of spreads. Most of these mechanisms have taken the form of an Alternative Advisory Committee (ARRC) “approach to change” or a similar language. Under this approach, a language is used to consider changes that reflect a replacement rate and spread agreed in the future by the administrative agent and the borrower, with the changes being deemed acceptable to all lenders, unless the majority of lenders object within a specified period of time.  In the absence of provisions for the replacement of LIBOR, an amendment to a credit agreement to replace LIBOR would normally require the unanimous agreement of the lender. Otherwise, historical provisions would normally be generated, with LIBOR in US dollars returning to the key rate of the US dollar.
Both can be detrimental to the borrower. It is estimated that at least $10,000 in syndicated loans refer to LIBOR. It will be a challenge to change so many credits to reflect the United States. The successor, once known, to the dollar-LIBOR credit market – not to mention the modification of new loans that have yet to be granted, which continue to relate to LIBOR – all in a short period of time. For some time, the ARRC has been offering an alternative to its “change approach”, called the “solid wired approach”. Under the “solid cable” approach, a language is included from the outset in the credit agreement, which automatically replaces LIBOR when triggering events are detected (e.g. Libor.B, announces by the supervisory authority that LIBOR is no longer representative or that the exercise of early voting rights) is necessary without modification of the credit agreement (with the exception of ministerial or “compliant” amendments required by the administrative officer, but do not require the agreement of the lender). However, the “wired” approach has not been widely used in credit agreements: a covenanted review investigation of 288 new issues and amended institutional credits from January 1, 2020 to June 30, 2020 found that none of them contained “wired” LIBOR recurrence provisions. .