Partner Rachael Gregory comments on the implications of the recent landmark High Court decision to allow Standard Chartered to use the Secured Overnight Financing Rate as an alternative to Libor.

“The judgment may give less certainty than many think. The court implied a term that the bank could substitute a new interest rate in place of LIBOR for reasons of business efficacy, rather than have to redeem the instruments.

“How this will apply depends upon the drafting of each individual instrument, and some degree of flexibility remains concerning what rates may be substituted and when.

“This is a pro-bank decision. Banks will breathe a sigh of relief that they do not suddenly need to stump up investors’ funds before the bonds would otherwise mature. However, investors will struggle for early redemption and will need to keep hold of their bonds.

“Given the broader consequences for the lending market, it is likely that this case will go to the Court of Appeal.”

Read Rachael’s comments which were published in Law360, here.