As of January 2022, Switzerland will change its reference rate from the LIBOR (London Interbank Offered Rate) to the SARON (Swiss Average Rate Overnight) as the LIBOR will not be further administrated in 2022.
The LIBOR is based on the interest rate on which the banks lend each other money without any collateral. Following the financial crises, almost no bank lends money without a collateral. This situation leads the LIBOR to be hardly based on real transactions but merely on estimations of experts and being therefore less reliable.
As of next year, the SARON will be the reference interest rate for Switzerland. It is derived from effective transactions, more precisely from the interest rates for high quality loans with collateral in Switzerland. With the SARON, the cost of a loan is not known in advance as this reference rate is only calculated and valid until the following day. This way, the cost of a SARON loan cannot be known in advance at the closing. In contrast, the LIBOR was calculated for longer periods and enabled the parties to know the cost of a loan at the closing of the contract.
The level of the SARON should usually be very close to the one of the LIBOR. The change described above should therefore not have a major impact on interest rates of current loans. We however advise individuals or organisations having LIBOR loans maturing after this year to inform themselves on the options available for the transition and to negotiate an amendment to the contract if it does not already include a clause regulating this interest transition.
For most loan contracts, the loan itself is an essential point of the agreement, whereas the interest a modality. Following this circumstance and if an amicable resolution cannot be reached by a failure of negotiations, the judge could amend the contract but not terminate it. Valid cases for termination could be loanswhere the volatility of the Libor is explicitly wanted and considered as anessential term of the contract.
The H&B Law team would be pleased to assist you in any matters related to the above.