ARRC Updates Libor Fallback Language for Business Loans

The Alternative Reference Rates Committee today released updated recommended fallback language for newly originated bilateral business loans that reference the London Interbank Offered Rate. The updated language adjusts the “hardwired” and “hedged loan” approaches described in last year’s recommended language.

The ARRC updated the hardwired approach to recommend the use of daily simple Secured Overnight Financing Rate—the ARRC’s preferred replacement for Libor—in the second step of the rate waterfall. The hedged loan approach now includes a benchmark rate floor.

The ARRC is a group of market participants convened by the Federal Reserve Bank of New York to support the transition from Libor—which is not guaranteed to be available after 2021—to SOFR. The ARRC also released a technical reference document for syndicated loan conventions.