On August 27, 2020, the Alternative Reference Rates Committee (ARRC) released its updated recommended USD LIBOR fallback contract language for bilateral business loans. The ARRC also released its technical reference document supporting syndicated loans conventions.

The hardwired approach for bilateral business loans was updated to recommend the use of simple daily SOFR in the second step of the waterfall. The hedged loan approach was updated to include a benchmark rate floor.

These published revisions are intended to align with the ARRC's recent revisions to the recommended fallback language for syndicated loans (see Legal Update, ARRC Releases Updated Recommended Hardwired Fallback Language for Syndicated Loans). The fallback language is intended to ensure that loan agreements remain effective if LIBOR is discontinued, as is anticipated to occur at some point after 2021. Updates from the ARRC support their best practice recommendations that syndicated loans begin using hardwired fallback language no later than September 30, 2020 and bilateral loans begin using hardwired or hedged fallback language no later than October 31, 2020.