ARRC Releases Additional Versions of Its Recommended Wired Fallback Language | McGuireWoods LLP
On March 25, 2021, the Alternative Reference Rates Committee (ARRC) published additional recommendations for its hard-wired fallback language for syndicated and bilateral loans denominated in US dollars. The ARRC’s additional recommendations follow the certainty on fallback times and economy offered by the Announcements of March 5, 2021 by the ICE Benchmark Administration, the UK Financial Conduct Authority and ISDA regarding LIBOR termination.
The updated language complements and simplifies the hard-wired fallback language recommended by the ARRC for LIBOR-linked loans in 2020 and aims to provide more transparency on the spread adjustments that will be applied once the fallback rates are set. will apply. The simplified version of the ARRC wired lending fallback solution is intended to facilitate a smooth transition from USD LIBOR and encourage voluntary adoption of the ARRC recommended alternative benchmark rate, SOFR and the language of wired rescue. The main changes to the language include:
- Following the certainty that the one-month, three-month, six-month and twelve-month USD LIBOR rates will remain representative until June 30, 2023, the ARRC has simplified the triggers for the effective transition to benchmark replacement. .
- Some defined terms have been deleted and others consolidated.
- For loans that switch from LIBOR in USD to Daily Simple SOFR, the new language specifies a payment period, which makes it possible to specify which spread adjustment will be used.
- The spread adjustment values set by the March 5 announcements have been added to the definition of “Benchmark Replacement”.
- The pre-cessation language has been changed to align it more closely with the wording of “Index Cessation Event” in the standard ISDA documentation.
The ARRC also provided guidance on new fallback provisions and considerations for market participants when reviewing and implementing fallback language. The guidelines cover both syndicated loans and bilateral loans.
Market players can now use the original 2020 or simplified 2021 versions of the ARRC fallback language, with both versions leading to the same result. The additional versions were hailed by ARRC Chairman Tom Wipf as “an essential additional resource to accelerate the preparation of market participants for the inevitable end of LIBOR USD”.