On March 8, 2021, the Alternative Reference Rates Committee (ARRC) issued a statement confirming a "benchmark transition event" with respect to all USD LIBOR settings under ARRC-recommended fallback language has occurred. The benchmark transition event is a result of the recent announcements by ICE Benchmarks Administration (IBA) and the UK Financial Conduct Authority (FCA) of the intention to cease publishing all tenors of LIBOR settings (see Legal Updates, ICE Benchmark Administration (IBA) Issues Feedback Statement on Intention to Cease Publication of LIBOR Settings and FCA Statement on Future Cessation and Loss of Representativeness of LIBOR Benchmarks).

The ARRC simultaneously published an FAQ Regarding the Occurrence of a Benchmark Transition Event, which describes the IBA and FCA announcements from March 5, 2021 regarding LIBOR and reiterates that the announcements constitute a benchmark transition event under ARRC-recommended fallback language. A benchmark transition event is a public statement or publication of information by the administrator of LIBOR stating that LIBOR settings will cease to be provided by any administrator or are no longer representative. A benchmark transition event does not require immediate transition under ARRC-recommended fallback language, but may trigger notice requirements from the agent or lender under certain credit agreement LIBOR fallback language (see Practice Note, What's Market: LIBOR Interest Rate Provisions: Proposed LIBOR Alternatives).

As a result of the benchmark transition event and March 5, 2021 announcements, parties may either:

The FAQ clarifies that:

In addition, the FAQ notes that ISDA has stated that the FCA's announcement constitutes an "index cessation event" under the ISDA fallbacks supplement and protocol for all 35 LIBOR settings, and that ISDA's fallback spread adjustments have therefore now been fixed for all LIBOR benchmark settings (see Legal Update, ISDA Issues Statement and Guidance on Future Cessation and Non-Representativeness of LIBOR).

The ARRC reiterates its previous statement that its recommended spread adjustment for cash products other than loans to consumer borrowers will match the value of ISDA's spread adjustments (which have now been fixed) for USD LIBOR (see Legal Update, ARRC Updates Spread Adjustment Methodologies for Cash Products Referencing LIBOR).

The ARRC also reiterates that the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) have issued a statement encouraging banks to transition away from reference rate USD LIBOR as soon as possible and cautions against entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021 (see Legal Update, Federal Reserve Provides Guidance on Review of Firms' LIBOR Transition Plans).

ARRC previously issued a statement commending the IBA and FCA announcements on the definitive dates for the cessation of LIBOR.

The ARRC fallback language may be, and in many cases has been, incorporated by market participants into new financial contracts such as credit agreements and into legacy agreements by amendment. The ARRC language is primarily used by parties to non-derivatives contracts. LIBOR transition for most derivatives contracts is governed by the ISDA fallbacks supplement and protocol.

For further information on LIBOR replacement and benchmark fallbacks, see LIBOR Replacement Toolkit.

For more information on the ISDA IBOR fallbacks supplement and IBOR fallbacks protocol, see Practice Note, Practice Point: Understanding the ISDA 2021 IBOR Fallbacks Supplement and Protocol.