After June 30, U.S. Bank will replace the three-month London interbank offered rate (LIBOR) with the three-month CME term secured overnight financing rate (SOFR) as the reference rate for certain outstanding floating rate or fixed-to-floating rate debt securities, preferred stock represented by depositary shares, income trust securities and preferred stock.
In March 2021, the UK Financial Conduct Authority announced that after June 30, 2023, one-month, three-month, six-month and 12-month LIBOR settings either will cease publication or no longer be representative.
In connection with the cessation of representative LIBOR, in the United States, the Adjustable Interest Rate Act (the “LIBOR Act”) was passed and subsequently implemented by regulations issued by the board of governors of the Federal Reserve System (the “LIBOR rule”) to aid transition efforts with respect to certain U.S. law-governed legacy contracts through a statutory replacement of LIBOR with a SOFR-based replacement rate. The LIBOR rule also establishes relevant tenor spread adjustments applicable to the SOFR-based replacement rates and sets forth technical, administrative and operational changes, alterations and modifications that are necessary or appropriate to the implementation, administration and calculation of the replacement reference rate.
Certain Legacy LIBOR instruments lack a clearly defined or practicable benchmark replacement rate, while others contain hardwired contractual fallback provisions that specify the transition to a specific successor reference rate and spread adjustment and, in either case, also may contemplate conforming changes that are necessary or appropriate to the implementation, administration and calculation of the replacement reference rate. U.S. Bank will transition each legacy LIBOR instrument referenced herein to three-month term SOFR plus the relevant tenor spread adjustment on the first applicable date after June 30 either (i) pursuant to the LIBOR Act and LIBOR rule by operation of law, (ii) pursuant to the discretion of a determining person to select the benchmark replacement under the LIBOR Act or LIBOR rule, or (iii) pursuant to the contractual terms of the legacy LIBOR instrument for any legacy LIBOR instruments that have hardwired fallback provisions.
For the following types of legacy LIBOR instruments that lack a clearly defined or practicable benchmark replacement rate and currently use three-month LIBOR as the reference rate or will use three-month LIBOR as the reference rate during a floating rate period, in accordance with the LIBOR Act and LIBOR rule, by operation of law, three-month term SOFR will be the reference rate for calculations of the amount of interest or dividends payable with respect to interest or dividend periods with determination dates occurring after June 30:
- Floating rate debt securities issued by U.S. Bank
- Floating rate and fixed-to-floating rate preferred stock (represented by depositary shares) issued by U.S. Bancorp
- Fixed-to-floating rate income trust securities issued by USB Capital IX
- Fixed-to-floating rate preferred stock issued by USB Realty Corp.
For legacy LIBOR instruments that lack a clearly defined or practicable benchmark replacement rate and provide a determining person with authority to select the benchmark replacement rate, three-month term SOFR will be the applicable reference rate for calculations of the amount of interest or dividends payable with respect to interest or dividend periods with determination dates occurring after June 30.
For legacy LIBOR instruments for which hardwired contractual fallback provisions specify the transition to a successor reference rate and spread adjustment following the cessation of the publication of three-month LIBOR on a representative basis, three-month term SOFR will be the applicable reference rate for calculations of the amount of interest or dividends payable with respect to interest or dividend periods with determination dates occurring after June 30.
In each case, the three-month term SOFR replacement rate, and therefore the calculation of the amount of interest or dividends payable on securities or instruments for interest or dividend periods with determination dates that occur after June 30, also will include the tenor spread adjustment of 0.26161% provided in the LIBOR Act and LIBOR rule for securities or instruments that reference three-month LIBOR or are consistent with the terms of the hardwired fallback provisions, as appropriate. In addition, the LIBOR Act conforming changes will apply to and will become an integral part of the legacy LIBOR instruments transitioning under the LIBOR Act and LIBOR rule, as well as those instruments transitioning pursuant to hardwired contractual fallback provisions.
