On April 8, the ARRC announced that it had agreed on a recommended spread adjustment methodology for cash products referencing USD LIBOR.

The ARRC’s recommended methodology is intended for use in for USD LIBOR contracts that have incorporated the ARRC’s recommended hardwired fallback language or for legacy USD LIBOR contracts where a spread-adjusted SOFR can be selected as a fallback. According to the ARRC, the recommended methodology is intended to make the ARRC’s recommended spread-adjusted version of SOFR more comparable to USD LIBOR and consistent with ISDA’s fallbacks for derivatives markets. Except to the extent required by the terms of parties’ contracts, use of the ARRC’s recommended methodology is voluntary.

The ARRC has recommended a spread adjustment methodology based on a historical median over a five-year lookback period calculating the difference between USD LIBOR and SOFR, consistent with the methodology recommended by ISDA for derivatives.

For consumer products only, the ARRC has recommended a 1-year transition period to this five-year median spread adjustment methodology.

The full text of the ARRC’s announcement is available here.