Treasurer Authorized to Amend Bank Loans
Resolved, That the Executive Council authorizes the Treasurer of the Domestic & Foreign Missionary Society (DFMS) to execute an amendment to the current term loan agreement and the current line of credit with U. S. Bank (Bank) to replace all references to LIBOR (London Interbank Offered Rate) with references to SOFR (Secured Overnight Financing Rate) and make all required changes to the agreements necessary by that replacement;
and be it further
Resolved, That the Treasurer is authorized to continue an interest rate swap or similar derivative instrument to reduce the effective fixed interest rate of the term loan; and be it further
Resolved, That the Treasurer is hereby authorized, empowered and directed to take such further action on behalf of DFMS as they deem necessary to effectuate the foregoing.
After 2021, all new financial contracts based in US dollars will reference SOFR where they previously referenced LIBOR. The current Term Loan expires January 26, 2026 but amending it now is the preferred route.
The current Term Loan expires January 26, 2026. It carries a variable interest rate equal to monthly LIBOR plus 1.15%. An interest rate swap arrangement provides the DFMS an effective annual fixed interest rate of 1.69%. The revised contract will reference SOFR 1.15%. The effective interest rate will remain at 1.69% because the swap reference rate will be modified for both the DFMS and the swap counterparty.
LIBOR, the financial standard for financial contracts for nearly 50 years, is being retired at the end of 2021. The $250 trillion worth of financial contracts that are tied to LIBOR denominated in US dollars will transition to SOFR published by the Federal Reserve Bank of New York.
LIBOR is calculated from estimates of the rate that major London banks charge each other for loans. In 2012, however, it was revealed that banks were rigging the rate, and actual trades between banks were not taking place.
In 2017, the UK Financial Conduct Authority announced that it would phase out the LIBOR benchmark by the end of 2021. Ultimately, for dollar-denominated contracts, SOFR was crafted. Unlike LIBOR, SOFR is based on actual, overnight transactions in the Treasury repo market. Thus, SOFR is a more accurate means of measuring the cost of borrowing money. LIBOR and SOFR rates have tracked each other closely (see attached chart).