ARRC Recommends Additional Libor Termination Language

Author:Mr Jeffrey Nagle
Profession:Cadwalader, Wickersham & Taft LLP

The Alternative Reference Rates Committee ("ARRC") recommended contractual fallback language for U.S. dollar LIBOR-denominated bilateral business loans and securitizations. These recommendations follow the ARRC's April 2019 recommended fallback language for floating rate notes and syndicated loans.

The ARRC's recommended fallback language for bilateral business loans is similar to its recommendation for syndicated loans in that it offers both a hardwired and an amendment approach. The hardwired approach includes a "waterfall" for choosing a replacement benchmark and spread adjustment should LIBOR become unusable. The amendment approach includes a "streamlined" mechanism for selecting a replacement benchmark and spread adjustment. Additionally, the fallback language includes an option that recognizes the relationship between loans that implement a replacement benchmark, and related hedging arrangements that are used to mitigate risks.

The ARRC's recommended fallback language for securitizations lays out a hardwired approach for triggering events and waterfall for rate determination. Additionally, it addresses challenges concerning the securitization market's asset and liability components.

Commentary / Jeffrey Nagle

The ARRC has now published recommended fallback language for all four classes of products on its task list: syndicated...

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