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ARRC formally recommends fallback rates and adjustment spreads for USD LIBOR

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    ARRC-recommended fallbacks to match US statutory fallbacks

    On 15 March 2023, the Alternative Reference Rates Committee (ARRC) formally recommended the replacement rates and related adjustment spreads to be used as fallbacks for USD LIBOR after 30 June 2023.1 To promote market consistency, the recommendations match the statutory replacement rates applicable to US law-governed contracts under the US Adjustable Interest Rate (LIBOR) Act.

    Benchmark replacement plus spread adjustment

    Contracts and instruments that reference USD LIBOR and incorporate the ARRC's standard contractual fallback language provide that, after 30 June 2023, USD LIBOR will be replaced with the "Benchmark Replacement".2 This comprises the sum of:

    (a) a forward-looking term rate; and

    (b)  a spread adjustment,

    each as recommended by the ARRC as the "relevant governmental body".

    The recommendations are set out in tabular format, for ease of reference. For the majority of contracts that are not consumer loans or mortgages, they are as follows:

     LIBOR TenorRecommended Replacement Rate  Recommended Spread Adjustment
     SOFR 0.00644%
    One-month  One-month CME Term SOFR 0.11448%
    Three-month  Three-month CME Term SOFR 0.26161%
     Six-monthSix-month CME Term SOFR  0.42826%
     Twelve-month Twelve-month CME Term SOFR 0.71513%

    Legacy contracts only

    In its communication, the ARRC notes that its recommendations are intended for use as fallbacks in legacy contracts only, and are not intended to apply to new contracts.

    The ARRC also notes that, where the standard fallback provisions are not hardwired into a contract, but the ARRC-recommended fallback rates are selected thereunder in accordance with a replacement rate determination process, such use is at the discretion of the contracting parties.

    For more information, see our LIBOR Transition Hub.

    Authors: Mike Logie and Kirsty McAllister-Jones


    1. The date from which all remaining USD LIBOR tenors will either be discontinued or will cease to be representative.

    2. This assumes that interpolation is not available.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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