On June 30, 2020, the Alternative Reference Rates Committee ("ARRC") published recommendations on fallback language for new originations of U.S. dollar-denominated syndicated business loans that reference LIBOR. The ARRC's recommendations include updated hardwired fallback language and an updated user's guide covering the updated fallback language and potential alternatives. The updated language expands upon the ARRC's previously recommended language by changing the second step of the benchmark replacement waterfall (which determines the replacement benchmark rate and spread adjustment in the event of a trigger event) from a compounded Secured Overnight Financing Rate ("SOFR") alternative to a daily simple SOFR, among other changes.
Also on June 30, the ARRC announced details regarding the implementation of its recommended spread adjustments for cash products that reference U.S. dollar LIBOR. After taking into account feedback provided by various industry participants, the ARRC will implement its spread methodology recommendations as follows:
- For cash products other than consumer products, the ARRC's recommended spread adjustment will match the value of ISDA's spread adjustments to U.S. dollar LIBOR.
- For all cash products, in the event that a pre-cessation event is operative, the ARRC's recommended five-year historical median spread adjustments will be determined at the same time as ISDA's spread adjustments, which will be at the time of any announcement that LIBOR will or has ceased, or will or has become no longer representative.
For a more detailed explanation of the updated fallback language, see "ARRC Publishes Refreshed Recommended Fallback Language for Syndicated Business Loans for LIBOR Transition Planning," by Jeff Nagle, Lary Stromfeld and Evan Carter.
Primary Sources
- ARRC Press Release: ARRC Announces Further Details regarding Its Recommendation of Spread Adjustments for Cash Products
- ARRC Report: Summary of Feedback Received in the ARRC Spread-Adjustment Consultation and Follow-up Consultation on Technical Details
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