Refinitiv Launches Forward Looking Term Rate Versions of ARRC Recommended Fallback Rates to Facilitate Industry Transition from USD LIBOR
- 22.09.2022 04:25 am
Today Refinitiv commences publication of forward-looking term rate versions of its ARRC recommended fallback rates - USD IBOR Cash Fallbacks. This follows the Alternative Reference Rates Committee’s (ARRC) March 2021 announcement that it had selected Refinitiv to publish its recommended fallback rates for cash products, and Refinitiv’s July 2022 announcement that it intends to launch the new USD IBOR Cash Fallbacks settings in September 2022.
There are trillions of dollars of cash products such as loans, bonds and securitized products that reference LIBOR and mature after June 30, 2023, which will use the ARRC’s recommended fallback rates. USD IBOR Cash Fallbacks help these legacy contracts to smoothly transition away from USD LIBOR and provide market participants, including lenders and borrowers, with an industry-standard agreed rate, which can clearly and easily be referenced in contracts.
These new forward-looking term rate versions of USD IBOR Cash Fallbacks are based upon CME Term SOFR plus the ARRC’s recommended spread adjustments. They support institutional cash products and consumer cash products and are available as all-in spread adjusted rates in 1-month, 3-month 6-month and 12-month tenors. The institutional versions are available today as production benchmarks and the consumer versions are available as prototype rates with the intention that these rates will enter production immediately following June 30, 2023, when the ARRC’s recommended spread adjustments for consumer products will be officially set.
Servicers seeking to communicate plans to move to the ARRC-recommended consumer fallbacks after June 30, 2023, can refer to the Refinitiv USD IBOR Consumer Cash Fallback 1-Month, Refinitiv USD IBOR Consumer Cash Fallback 3-Month, Refinitiv USD IBOR Consumer Cash Fallback 6-Month, and Refinitiv USD IBOR Consumer Cash Fallback 12-Month respectively. Consumers can be directed to https://www.refinitiv.com/usdiborconsumercashfallbacks to see the ARRC-recommended consumer fallback rates and the most recent rate history. The ARRC’s recommended USD IBOR Consumer Cash Fallbacks are unfloored. Refinitiv also publishes a version of its fallbacks where the all-in rate is floored at zero - USD IBOR Consumer Cash Fallbacks Floored - which may be suitable where contractual fallbacks refer to a floored rate.
Since November 2021, Refinitiv USD IBOR Institutional Cash Fallbacks based upon SOFR compounded in arrears, daily simple SOFR in arrears and SOFR compounded in advance plus a spread adjustment have been available for use in financial and nonfinancial corporate contracts. Refinitiv also produces USD IBOR Consumer Cash Fallbacks based upon compounded SOFR in advance plus a spread adjustment. Except for the 1-week and 2-month USD IBOR Consumer Cash Fallbacks these consumer rates are prototypes.
Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv, said: “With forward-looking term rate versions of Refinitiv USD IBOR Cash Fallbacks now available, market participants have an easy-to-use replacement benchmark that can be used in their legacy LIBOR contracts.”
Tom Wipf, ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley, said: “With the end of U.S. dollar LIBOR’s publication nearly upon us, it is critical to smoothly transition legacy contracts that will mature after then. Refinitiv’s publication of these ARRC-recommended fallback rates supports market participants in this effort by equipping them with an important tool that can be readily referenced in legacy cash products.”
Firms and individuals are able to receive all versions of Refinitiv USD IBOR Cash Fallbacks through the full suite of Refinitiv products, including Refinitiv Workspace, Refinitiv Eikon, Refinitiv Real-Time and Refinitiv DataScope as well as via the Refinitiv website.