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It’s been a busy summer in the land of LIBOR transition preparation. As part of the ARRC’s ongoing efforts to prepare the cash product markets for the transition to SOFR and away from LIBOR as a benchmark interest rate, it posted ten separate releases between Memorial Day and August 7, 2020, in addition to hosting six “SOFR Summer Series” panel discussions on various SOFR topics (which were recorded and can be accessed here). This blogpost focuses on aspects of the ARRC’s releases relating to business loans.

Read on for more details, but here are a few major takeaways: (1) don’t expect any COVID related delays in the LIBOR sunset schedule – work on implementing hardwired LIBOR fallback language this fall and plan stop using LIBOR by mid-2021; (2) the ARRC now recommends simple SOFR in arrears as the best available fallback rate alternative for most business loans (at least until a term SOFR in advance market develops); and (3) feedback from the business loan market reflects a preference for following ISDA’s lead on LIBOR to SOFR transition issues whenever practicable to facilitate consistency between swaps and business loans (e.g., spread adjustments and certain conventions).…

Continue Reading LIBOR Transition: Business Loans SOFR Summer Wrap Up

On June 30, the ARRC published a revised version of its hardwired fallback language for new US Dollar LIBOR-linked syndicated loans. Along with this updated language, the ARRC also updated its user’s guide, which contains guidance for market participants for the adoption of the refreshed fallback provisions.
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Continue Reading ARRC Publishes Updated Recommended Fallback Language for New USD LIBOR-Linked Syndicated Loans

On Thursday, June 4, the Consumer Financial Protection Bureau (“CFPB”) issued guidance to address issues arising out of the pending discontinuation of LIBOR and the resulting need for creditors to transition to other benchmarks. As the CFPB has noted, at this time, the transition is expected after 2021, with the anticipated shift to the Secured Overnight Financing Rate (“SOFR”) index supported by the Alternative Reference Rates Committee (ARRC), a public-private working group organized to address the transition. Ahead of an inevitable, challenging transition, the CFPB issued an extensive rulemaking proposal with request for public comment, a revised consumer handbook, and updated compliance guidance.
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Continue Reading CFPB Issues Proposals and Updated Guidance Ahead of LIBOR Discontinuation

In his speech in July 2019, Andrew Bailey called for public debate on potential outcomes for legacy contracts that prove unable to convert or be amended to include fallbacks to risk free rates before the discontinuance of LIBOR. In response to that speech, the Working Group on Sterling Risk-Free Reference Rates last week published a paper on how to catalyse the transition of such ‘tough legacy’ contracts away from LIBOR.

To address ‘tough legacy’ contracts, the Working Group has proposed that the UK Government consider introducing legislation. They note that in the U.S., the Alternative Reference Rates Committee (the ARRC) has proposed a similar approach and there would be benefits from the international consistency that would result from the UK mirroring this.…

Continue Reading “Tough Legacy” Contracts May Require Legislative Fix to Catalyse Their Transition Away From LIBOR, Says Working Group

On April 17, the ARRC released a set of key objectives for 2020 that the ARRC has set for itself to support the voluntary use of SOFR as an alternative to USD LIBOR. The ARRC stated that its objectives were developed keeping in mind the current expectation that LIBOR can no longer be guaranteed beyond the end of 2021, noting that this timeline was recently reinforced by the UK FCA in a statement released in the context of dislocations surrounding the coronavirus.
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Continue Reading ARRC Announces Key Objectives for 2020

On April 17, the ARRC released a webinar providing an in-depth overview of the ARRC’s  proposed New York State legislation.

As previously noted on this blog, the ARRC has indicated that the proposed legislation is intended to minimize legal uncertainty and adverse economic impacts associated with LIBOR transition and would: (i) prohibit a contract party…

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…

On March 6, 2020, the ARRC released a proposal for New York State Legislation, which the ARRC states is intended to minimize legal uncertainty and adverse economic impacts associated with LIBOR transition.

According to the ARRC, the proposed legislation would: (i) prohibit a contract party from refusing to perform its contractual obligations or declaring a…

Potential New York State Legislation

The AARC has proposed a potential legislative solution aimed to reduce the adverse economic outcomes of legacy LIBOR fallbacks in contracts governed under New York law for all asset classes. (New York law is the chosen governing law for many financial agreements that use LIBOR as a reference.)  Such legislative solutions proposals were discussed at certain AARC meetings in 2019, but the proposal took more detailed form recently.  On March 6, 2020, the ARRC proposed legislation that would apply the ARRC-recommended benchmark replacement (SOFR) on both a mandatory and statutory basis, and contained provisions designed to limit litigation arising from the benchmark replacement.…

Continue Reading Possible Legislative Solutions for Existing US LIBOR Products

On January 31, 2020, the ARRC released a vendor survey and a buy-side checklist. Both documents were developed by the ARRC’s Operations/Infrastructure Working Group and, according to the ARRC, are intended to support market participants’ work to address operational challenges in the transition from USD LIBOR to SOFR. The survey serves as a self-assessment tool…