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III. How Can Lenders Protect Themselves?


It is imperative that lenders address the legal and operational risk they might have with LIBOR transition. Banks should examine their existing loan documents to quantify their LIBOR exposure and to understand how fallback reference rates will be determined. If no methodology is included, one will need to be added in the loan documents. Fallback language that only addresses LIBOR’s temporary unavailability may not suffice because LIBOR will be permanently discontinued. Moreover, if existing loan documents fallback to the “prime rate,” it still might not be an ideal long-term reference rate or an acceptable replacement for borrowers.


Lastly, for loan documents that use LIBOR, lenders should consider approaching borrowers to propose amendments that


provide clear language that addresses LIBOR transition. If you use third-party vendors to produce loan documents or maintain any of your operations systems, you should contact them regarding steps they are taking to transition away from LIBOR and system updates.


It is important that lenders properly prepare for the LIBOR transition. Tere is still a lot of uncertainty on what the LIBOR transition will bring. Although this transition may be disruptive in the short term, moving to SOFR or another similar reference rate should bring further stability to the financial markets over the long-term.


  Kenney and Ani Kaufmann Mamisashvili are attorneys in Husch  Banking & Finance team. Visit huschblackwell.com to learn more. Husch Blackwell LLP is an MBA associate member.


Changes are coming. Are you prepared?


    


Learn how we can help at huschblackwell.com/LIBOR.


Chris Rockers, Partner christopher.rockers@huschblackwell.com | 816.283.4608


Arizona | California | Colorado | Illinois | Missouri | Nebraska | Tennessee | Texas | Utah | Washington, DC | Wisconsin huschblackwell.com


4801 Main Street, Kansas City, MO 64112 | 816.983.8000


THE MISSOURI BANKER 21


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