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.

Continue Reading ARRC Announces Key Objectives for 2020

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

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.

Continue Reading ARRC Consultation on Spread Adjustment Methodologies