Impending Changes To Federal Funds Rate Calculations & Credit Agreement Implications

Ever since the LIBOR fixing scandal attracted headlines in the wake of the financial crisis, financial benchmarks¹ of all stripes have come under increased scrutiny from financial regulators around the world. The concerns around governance, integrity of benchmark inputs and the calculation methodology that were raised regarding LIBOR have likewise been raised for other financial benchmarks beyond LIBOR and even beyond interest rate-related benchmarks. Key benchmarks in global foreign exchange and commodity markets, in addition to other interest rate-related benchmarks beyond LIBOR, have been placed under the regulatory microscope. Here in the U.S., the benchmark reform movement has recently swept up the key Federal Funds Effective Rate ("FFER"). As described below, recent announcements from the New York Federal Reserve portend changes in the way the FFER will be calculated going forward and, as a result, syndicated credit agreements and possibly other financial