The ARRC Releases its Guiding Principles for New LIBOR Fallbacks

On July 9, 2018, the Alternative Reference Rates Committee (the "ARRC") announced voluntary guiding principles for market participants to use in developing new LIBOR fallbacks for cash products, which include USD LIBOR floating rate notes.¹

As we discussed in an earlier article in this publication, issuers of floating rate notes have begun to adjust their LIBOR fallback mechanisms to avoid having their floating rate notes default to fixed rate notes when LIBOR ceases to be published in 2021.² Some of the issues we discussed in our article are covered in detail in the ARRC announcement: the need for an exact definition of what constitutes a LIBOR cessation, the use of a substitute rate, adjustments to the substitute rate to account for the various LIBOR tenors and the extent of discretion allowed to the entity that chooses the substitute rate or makes necessary adjustments to that rate.