LIBOR Transition Update – March 2021
ARRC Releases Supplemental Recommendation of Hardwired Fallback Language for Business Loans
- These simplified versions of the ARRC’s hardwired fallback language for business loans, like commercial real estate loans, are a simplification of their recommended fallback language for syndicated business loans, published in June 2020. The language is a good indicator of how many business loans could address a change in the floating-rate index from LIBOR to SOFR.
- Read ARRC’s supplement
ARRC Published Progress Report on Transition from USD LIBOR
- The report provides a comprehensive overview of the LIBOR transition, including a timeline of concrete steps taken in the transition thus far, what’s left to be done and a timeline of such. The report provides a useful table of remaining LIBOR exposures and data on the development of how financial markets will accommodate a world without LIBOR.
- Most importantly, the report provides critical insight into where progress away from LIBOR will need to materially accelerate to meet the transition deadlines.
- Read the New York Fed’s report
The Federal Reserve published Supervisory Guidance SR 21-7: Assessing Supervised Institutions’ Plans to Transition Away from the Use of the LIBOR
- America’s central bank is increasingly concerned that institutions it supervises – lenders among them – aren’t doing enough to prepare for LIBOR’s sunset and will eventually create safety and soundness risks as a result. This guidance, which is a follow-up to the issuance of the Interagency Statement on LIBOR Transition, encourages supervised firms to cease entering into entering into new contracts that reference LIBOR after December 31, 2021.
- Read The Fed’s guidance
ARRC Publishes White Paper on Suggested Fallback Formula for the USD LIBOR ICE Swap Rate
- The white paper describes a formula to calculate a fallback from the U.S. dollar (USD) LIBOR ICE Swap Rate to a spread-adjusted Secured Overnight Financing Rate (SOFR) Swap Rate. Contracts that are indirectly linked to USD LIBOR through reference to USD ICE Swap Rates are not covered by existing fallback provisions. The paper is intended to facilitate conversations within industry bodies and between counterparties on incorporating robust fallbacks in both legacy and new contracts referencing the USD LIBOR ICE Swap Rate.
- Read the white paper
ISDA’s new IBOR fallbacks have come into effect: Are you a borrower? Do you own an interest rate cap or have an interest rate swap? It’s critical that you understand the IBOR fallbacks to avoid potentially negative financial consequences down the road. Get educated here: The ISDA IBOR Fallback Protocol and What it Means for You
News and Notes
The following links are worth considering for their potential impact on your business.
- Companies Still Working on LIBOR Changeover. Regulators press firms to drop borrowing benchmark, while many weigh its replacement or discuss timing, financial implications. Chief financial officers at major U.S. companies said they are working on issues including choosing between alternatives to the troubled borrowing benchmark, used for decades to help set rates on corporate debt, and discussing the timing and financial implications. [Go to Wall St. Journal]
- Fed’s Quarles aims to clear up confusion about LIBOR deadline. Regulators are preparing to penalize any banks that use the London interbank offer rate on new contracts after this year, said Federal Reserve Vice Chair of Supervision Randal Quarles. In a speech in New York hosted by the Alternative Reference Rates Committee, Quarles set out to correct the misperception that companies have a while before they must adopt an alternative benchmark rate for new deals. [Go to American Banker]
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