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ARTICLE · 05 FEBRUARY 2020

ARRC Consultation On SOFR To LIBOR Spread Adjustments

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On January 21, 2020, the ARRC released a consultation on methodologies for spread adjustments to be used in USD LIBOR contracts, such as floating rate notes, that use the ARRC's hard-wired recommended fallback language.

United StatesFinance and Banking
Bradley Berman
Bradley Berman
Gonzalo Go
Gonzalo Go
Anna T. Pinedo
Anna T. Pinedo
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On January 21, 2020, the Alternative Reference Rates Committee ("ARRC") released a consultation on methodologies for spread adjustments (the "Consultation") to be used in USD LIBOR contracts, such as floating rate notes, that use the ARRC's hard-wired recommended fallback language.1 That fallback language provides a mechanism for a USD LIBOR floating rate note to shift over to the secured overnight financing rate ("SOFR") at the time that LIBOR ceases publication.2 The ARRC's recommended fallback language, however, is currently missing two elements.

The first fallback from USD LIBOR, term SOFR, does not yet exist and is not expected to become available prior to the cessation of LIBOR. The second missing piece is the spread adjustment to be added to SOFR. The goal of the Consultation is to achieve a consensus in the market on the methodology for calculating the spread adjustment, which would be static and would be fixed at a specified time at or prior to LIBOR's

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