On January 21, 2020, the ARRC released a Consultation on spread adjustment methodologies for cash products referencing U.S. dollar (USD) LIBOR. The ARRC indicated that the spread adjustments are intended for use (i) in USD LIBOR contracts that have incorporated the ARRC’s recommended hardwired fallback language, or (ii) for legacy USD LIBOR contracts where a spread-adjusted SOFR can be selected as a fallback. The adjustments seek to establish a  static  spread  adjustment  that  would  be  fixed  at  a  specified  time  at  or  before  LIBOR’s  cessation and would adjust for the historical differences between LIBOR and SOFR and are intended to make the spread-adjusted rate comparable to LIBOR (the ARRC clarified that it is not considering dynamic spread adjustments). In addition to the methodology for determining spread adjustments, the ARRC is requesting comment on whether a “transition period” over which the applicable spread adjustment would be implemented should be included for any cash products in order to smooth the effects of a potentially abrupt transition to a new spread-adjusted rate, which may differ significantly from the rates prevailing at the time LIBOR is discontinued.

The ARRC seeks responses to the consultation from a wide range of stakeholders, including but not limited to,  cash  market  participants in floating rate notes, syndicated loans, business  loans, securitizations and retail consumer products referencing USD LIBOR. After initial publication of the Consultation, the ARRC announced on March 6, 2020 that it had extended the comment period for feedback on the Consultation. The deadline for submitting comments to the Consultation is March 25, 2020.

A copy of the ARRC’s announcement regarding the Consultation can be found here.