BAFT, ITFA to Develop Fallback Language for Master Participation Agreements

As financial institutions around the globe continue preparing to transition financial contracts away from the London Interbank Offered Rate, which is not guaranteed to be sustained after 2021, BAFT—the American Bankers Association’s global transaction banking subsidiary—and the International Trade and Forfaiting Association noted that the transition could have implications for master participation agreements.

The groups noted that they intend to work on developing fallback language for standardized master participation agreements once the Bank of England’s Working Group on Sterling Risk-Free Reference Rates releases its set of Term Sterling Overnight Index Average Reference Rates—the U.K.’s preferred Libor alternative. Those reference rates are expected to be released in the second quarter of 2020. In the meantime, the groups offered a high-level disclaimer that may be used in marketing materials and term sheets.

In related news, the Alternative Reference Rates Committee today released recommendations that a voluntary exchange of cash compensation take place between counterparties to legacy swaptions referencing U.S. dollar Libor and that counterparties specify an agreed discount rate using SOFR for new swaptions expiring after October 16, 2020.

The ARRC also said it would extend the comment period for its proposed fallback contract language for new variable rate private student loans.