LIBOR Index Transition

LIBOR stands for London Interbank Offered Rate. It is a benchmark interest rate that was meant to reflect interest rates major banks charge each other for short-term loans. Historically, LIBOR was used internationally as a benchmark or “reference rate” for setting rates on loans and other financial products. However, the ICE Benchmark Administration (IBA) has announced that it will no longer publish LIBOR on a representative basis after June 30, 2023. As a result, due to factors outside of our control, the financial industry is transitioning away from LIBOR, and all loans with interest rates based on LIBOR must transition to another index.

For more information on the discontinuation of LIBOR, see this article from the Consumer Financial Protection Bureau, available at:

consumerfinance.gov/about-us/blog/the-libor-index-for-adjustable-rate-loans-is-being-discontinued-heres-what-to-watch-for.

For general information on adjustable-rate consumer mortgages, see the Consumer Handbook on Adjustable-Rate Mortgages, maintained by the Consumer Financial Protection Bureau and available at:

files.consumerfinance.gov/f/documents/cfpb_charm_booklet.pdf.

All First Republic Bank clients that currently have loans based on the LIBOR index will be impacted by this change and contacted via mail in the months leading up to the transition. Don’t hesitate to reach out to your Relationship Manager if you have any questions.

After careful consideration of available options, First Republic will transition LIBOR-based consumer and commercial loans as follows:

Consumer LIBOR-based loans will transition to a spread-adjusted term Secured Overnight Financing Rate (“Consumer Spread-Adjusted Term SOFR”) to be published by Refinitiv when LIBOR ends. Consumer Spread-Adjusted Term SOFR is based on CME Group’s term Secured Overnight Financing Rate (“Term SOFR”) plus a spread adjustment. The spread adjustment will be equal to the five-year historical average spread between LIBOR and SOFR, with a portion of the spread adjustment phased in over the course of one year. The spread adjustment is meant to generally equate the two indexes.

Commercial LIBOR-based loans will transition to the spread-adjusted term Secured Overnight Financing Rate (“Institutional Spread-Adjusted Term SOFR”) published by Refinitiv. Institutional Spread-Adjusted Term SOFR is based on CME Group’s Term SOFR plus a spread adjustment. The spread adjustment will be equal to the five-year historical average spread between LIBOR and SOFR. The spread adjustment is meant to generally equate the two indexes.

First Republic believes that both options represent a fair, reasonable and comparable substitute index.

A small number of First Republic LIBOR-based loans have promissory notes that specify a different replacement index. These loans will be transitioned to the replacement index specified therein.

SOFR stands for “Secured Overnight Financing Rate.” SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The index is based on transactions in the Treasury repurchase market, where banks and investors borrow (or loan) Treasuries overnight. For more information on how SOFR is calculated, please visit newyorkfed.org/markets/reference-rates/sofr. SOFR was first published in April 2018 and is used to price both derivatives and loans. New index values are published each business day by the Federal Reserve Bank of New York.

In July 2023, LIBOR-based loans that do not specify a different replacement index will transition based on loan type, as noted below.

Consumer LIBOR-based loans will transition to Consumer Spread-Adjusted Term SOFR, which will be published by Refinitiv, in final form after June 30, 2023, and as described above.

Commercial LIBOR-based loans will transition to Institutional Spread-Adjusted Term SOFR, published by Refinitiv and as described above.

The interest rate on your loan is either currently determined by or would be determined at the end of your fixed-rate period by adding the value of either 1-month, 3-month, 6-month or 12-month LIBOR and the margin, as further specified in your promissory note. When representative LIBOR rates are no longer available, we’ll replace them with the corresponding tenor of either Consumer Spread-Adjusted Term SOFR or Institutional Spread-Adjusted Term SOFR as determined by your loan type and promissory note. The new index will be used to calculate future interest rate and payment changes for your loan. We’ll make this transition for you in accordance with the terms of your loan documents. You don’t need to take any action.

If you have any questions on which index and tenor your loan will be transitioned to, please reach out to your Relationship Manager.