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ARRC Recommends Replacement Benchmarks for Certain 1-Week and 2-Month USD LIBOR Contracts

The Alternative Reference Rates Committee, acting as the "Relevant Recommending Body" under LIBOR legislation enacted in New York and Alabama, officially selected and recommended replacement benchmarks, based on the Secured Overnight Financing Rate, to replace 1-week and 2-month U.S. dollar LIBOR in contracts that are within the scope of these two state statutes. The ARRC also selected and recommended spread adjustments and conforming changes to accompany these replacement benchmarks.

These selections and recommendations apply to New York or Alabama law-governed contracts that lack fallbacks for LIBOR or that elect to take advantage of the statutes’ optional safe harbor. The selections and recommendations vary by product type and are broken down by category, including asset-backed securities, business loans, consumer products and floating rate notes. In addition to these formal selections and recommendations, the ARRC also published a set of FAQs that clarifies the scope and application of these state LIBOR statutes.

Tom Wipf, Chair of the ARRC, stated:

"The end is upon us, with just one month until no new LIBOR and the cessation of these two USD LIBOR tenors. LIBOR's endgame has been clear for a long time, and today’s recommendations are important for the legacy contracts that rely on those tenors."

Commentary

The ARRC’s release of recommended benchmark replacements for the one-week and two-month LIBOR tenors is a milestone in the LIBOR transition. Only a few short years ago, the ARRC was constituted to help plan for the LIBOR transition and mitigate uncertainty over how that transition would unfold. Now, state-level legislation championed by the ARRC has been passed, and these recommended benchmark replacements provide a solution for contracts that rely on those tenors and that failed to adequately plan for the LIBOR transition, which is a major step toward easing the LIBOR transition and mitigating uncertainty.

Primary Sources

  1. ARRC Press Release: ARRC Releases Statutory Fallback Recommendations for 1-Week and 2-Month USD LIBOR Contracts

  2. ARRC Statement: Statement as the “Relevant Recommending Body” under State LIBOR Legislation with respect to 1-week and 2-month USD LIBOR tenors

  3. ARRC FAQ: New York State LIBOR Legislation

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XI, Number 340
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About this Author

Lary Stromfeld Financial Attorney Cadwalader
Partner

Lary Stromfeld is a partner of the firm and a member of its Management Committee. He has represented leading financial institutions and other participants in the global capital markets for more than 35 years. He has a reputation for giving practical advice in transactions, disputes and advisory matters involving a wide variety of financial products and complex financings. His versatile practice and strong technical skills have earned him top rankings in multiple global surveys, and the Financial Times recently named him one of the “Top 10 Legal Innovators for North America” for...

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