ARRC Releases Recommendations for USD LIBOR ICE Swap Rate Contracts

by Practical Law Finance

Published on 15 Jun 2022 • USA (National/Federal)

The Alternative Reference Rates Committee (ARRC) released recommendations for contracts linked to the USD LIBOR ICE swap rate.

On June 8, 2022, the Alternative Reference Rates Committee (ARRC) released recommendations for contracts linked to the USD LIBOR ICE swap rate (ISR), which are not covered by federal LIBOR legislation (see Legal Update, Legacy LIBOR Transition Measure Signed into Law by President Biden as Part of Omnibus Spending Bill). The ARRC recommends that parties to these contracts "take proactive steps to address the end of USD LIBOR ISR" and made the following recommendations to mitigate fallout from the phaseout of USD LIBOR, which is the basis for the ISR:

Market participants should inventory their contracts tied to the USD LIBOR ISR and identify the fallback provisions that they contain.
Where practical, market participants should take proactive steps to address the impact of the cessation of USD LIBOR ISR on their legacy positions by:
- converting these positions to their secured overnight financing rate (SOFR) or SOFR ISR equivalent;
- incorporating hardwired fallbacks consistent with the approach suggested by the ARRC and included in the prevailing version of the ISDA definitions; or
- considering calling or buying back debt instruments with problematic fallback provisions.
If a legacy position cannot be proactively converted to SOFR or the SOFR ISR and its contractual fallbacks cannot be amended:
- the ARRC believes that, once three-month USD LIBOR has ceased to be published as a representative rate, the fallback formula suggested would accurately represent the at-the-money rates of standard interest rate swaps which are tied to it and which incorporate the fallback provisions introduced in the ISDA 2020 IBOR Fallbacks Protocol (see Practice Note, Practice Point: Understanding the ISDA® 2021 IBOR Fallbacks Supplement and Protocol);
- as a result, if the contractual fallbacks involve calculation agent determination, the ARRC recommends that calculation agents consider the ARRC's suggested fallback formula in determining a successor rate provided in the ARRC's recommendations.

For further information on LIBOR replacement and benchmark fallbacks, see Practical Law's LIBOR Replacement Toolkit.

ARRC Releases Recommendations for USD LIBOR ICE Swap Rate Contracts | Practical Law