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The Alternative Reference Rates Committee ("ARRC") published two consultations on U.S. dollar (USD) LIBOR fallback contract language for bilateral business loans and securitizations.
The ARRC proposed two different approaches to develop stronger fallback language for bilateral loans, including (i) an amendment approach, which would provide a streamlined amendment mechanism for negotiating a replacement benchmark in the future and (ii) a hardwired approach, which would help clarify how a replacement rate should be identified and implemented. The consultation on securitizations proposed a hardwired approach, focusing on the use of clear triggers and fallback rates to replace LIBOR with a more economically appropriate replacement rate and spread adjustment.
These are the third and fourth consultations published by the ARRC. The first two covered floating rate notes and syndicated loans. The primary goal of the consultations is to produce fallback provisions that will reduce operational, legal and basis risk upon the cessation of LIBOR or other specific events indicating the reduced liquidity or reliability of LIBOR. The fallback language is intended to be as consistent as possible across multiple markets while recognizing the specific needs and practices of each product.
Comments on the securitization and bilateral loans consultations must be submitted by February 5, 2019. The comment period for the first two consultations has ended and the ARRC has published the results on its website.
Cadwalader, Wickersham & Taft LLP represented the ARRC in the development of all four consultations.
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