Following the selection of alternative risk-free rates (RFRs) to replace each of the five LIBOR currencies: SOFR (for USD LIBOR), SONIA (for GBP LIBOR), SARON (for CHF LIBOR), TONAR (for JPY LIBOR) and €STR (for Euro LIBOR), ISDA launched consultations to obtain input from market participants on how to address the adjustments required as a result of the economic and term differences between LIBOR and RFRs. In November 2019 and February 2020, ISDA published the results of these consultations. ISDA established that the majority of respondents preferred:
- A spread adjustment based on the ‘historical median approach over a five-year lookback period’ to address the economic differences between IBORs and RFRs;
- A ‘compounded rate set in arrears’ to address differences in tenor; and
- Not to include a transitional period in the spread adjustment calculation.
On February 24, 2020 ISDA launched a re-consultation on pre-cessation fallbacks following comments from the UK Financial Conduct Authority and ICE Benchmark Administration (the administrator for LIBOR) on the period that LIBOR may continue to be published following a regulatory statement that the benchmark is no longer representative of the underlying market. The deadline for responses to this consultation is March 25, 2020.