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

As the 2021 deadline for the cessation of LIBOR approaches, two key milestones for the LIBOR transition in the derivatives space are set to occur in the second half of 2020. These are the SOFR discounting switch and publication of the ISDA Protocol and Supplement amending the 2006 ISDA Definitions. Market participants anticipate that these changes will continue to increase risk-free rate (RFR) trading volumes and address liquidity concerns.

Continue Reading Liquidity Concerns and Key 2020 Milestones in the LIBOR Transition for Derivatives Transactions

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

In our blog post of February 11, 2020, we discussed ISDA’s re-consultation on pre-cessation triggers following the announcement by the Financial Conduct Authority that there is a possibility that LIBOR may continue to be published for a short period after regulators have announced that it is no longer representative of the underlying market (a

With the announcement by the Financial Conduct Authority that the London Interbank Offered Rate (LIBOR) may cease to exist, the financial markets are facing a major upheaval in this respect. Market participants, financial institutions and lawyers alike are working around the clock to ensure the transition from LIBOR to risk-free rates (RFRs) is as seamless as possible.

Continue Reading Replacement of LIBOR: IS Litigation Inevitable in the Derivatives Market?

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

In a letter to the International Swaps and Derivatives Association (ISDA) on January 20, 2020, the Financial Conduct Authority (FCA) confirmed the possibility that LIBOR may continue to be published for a short period after regulators have announced that it is no longer representative of an underlying market (a non-representative LIBOR). The European Benchmarks Regulation could prohibit EU-supervised firms from entering into new derivatives transactions referencing such a non-representative LIBOR. As a result, the FCA encouraged ISDA to provide the derivatives market with the ability to insert triggers into their derivatives contracts to allow fallbacks to risk-free rates if such a regulatory announcement is made prior to the cessation of LIBOR (a pre-cessation trigger).

Continue Reading ISDA to Revisit LIBOR Pre-Cessation Triggers

In September 2018, the International Swaps and Derivatives Association (ISDA) published the ISDA Benchmarks Supplement as a response to the EU Benchmarks Regulation (BMR), which regulates the use of benchmarks.

The term “benchmarks” is broadly defined as any index that is used to (a) determine the amount payable under a financial contract or financial instrument, which includes derivatives contracts; (b) determine the value of a financial contract or financial instrument; or (c) measure the performance of an investment fund with the purpose of tracking the return of such index or of defining the asset allocation of a portfolio or of computing the performance fees.

The ISDA Benchmarks Supplement allows entities to amend the contractual triggers and fallbacks of over-the-counter (OTC) derivatives documentation that references interest rate, foreign exchange, equity and commodities benchmarks under the current ISDA definitions incorporated into transactions using the ISDA Master Agreement and associated documentation.


Continue Reading Update on LIBOR Reforms and ISDA Documentation