ARRC issues statement on recommended fallbacks for hardwired fallback language

The Alternative Reference Rates Committee today released a paper formally stating its selections and recommendations as the “relevant governmental body” as they apply to the contractual provisions included in the ARRC’s recommended hardwired fallback language. In particular, the hardwired language requires verification by the ARRC acting as a “relevant governmental body” of certain recommendations made under it, including the committee’s selection or recommendation of a forward-looking SOFR term rate as a replacement for Libor for a given cash product; its recommendations of spread adjustments; and its recommendations of replacement indexes for use in consumer Libor products.

The document lays out the ARRC’s selections and recommendations to be applied in the determination of the “benchmark replacement,” the “benchmark replacement adjustment” and the “recommended replacement index,”
as these terms are used in the ARRC’s recommended fallback language for closed-end residential adjustable-rate mortgages, floating rate notes, variable-rate private student loans, bilateral business loans, syndicated business loans and securitizations, as well as subsequent supplemental versions of fallback language for bilateral business loans, syndicated business loans and securitizations.

The ARRC has emphasized that the selections and recommendations set out in the statement are intended only for use in these legacy Libor contracts that fall back to SOFR and are not intended to apply to new contracts.