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ARTICLE · 28 JANUARY 2020

ARRC Launches Consultation On Spread Adjustment Methodologies For Fallbacks In Cash Products Referencing USD LIBOR

Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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In the consultation, the ARRC discusses the benefits of various methodologies for determining the spread adjustment.

United StatesFinance and Banking
Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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On January 21, 2020, the Alternative Reference Rates Committee ("ARRC") of the Federal Reserve Board launched a consultation seeking feedback from market participants on ARRC's recommended spread adjustment methodologies for cash products referencing USD LIBOR. The consultation was titled "ARRC Consultation on Spread-Adjustment Methodologies for Fallbacks in Cash Products Referencing USD LIBOR" (the "Consultation").

The ARRC-recommended spread adjustment methodologies for the cash products are intended to be used in connection with USD LIBOR contracts that have incorporated previous ARRC-recommended hardwired fallback language that provides for a fallback rate based on the secured overnight financing rate ("SOFR") and the applicable spread adjustment. The purpose of the spread adjustment is to reduce the economic impact of shifting from an unsecured rate to a rate that is nearly risk-free (e.g., because LIBOR includes bank credit risk, it is likely to be higher than a

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