Refinitiv launches forward looking term rate versions of ARRC recommended fallback rates to facilitate industry transition from USD LIBOR
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An overview of Refinitiv USD IBOR Cash Fallbacks
The Refinitiv USD IBOR Cash Fallbacks are a family of rates that support market participants migrate away from USD LIBOR. ICE LIBOR® and LIBOR® are registered trade marks of ICE Benchmark Administration Limited (IBA), and are used by Refinitiv with permission under licence by IBA.
In light of the LIBOR cessation notice, market participants must be prepared for what happens to their existing USD LIBOR referencing contracts once USD LIBOR is no longer published.
The Alternative Reference Rates Committee (ARRC) Progress Report, published March 31, 2021, estimated there will be approximately $5tn USD LIBOR referencing contracts in business loans, consumer loans, bonds and securitisations maturing after June 2023. Many of these exposures have adopted ARRC-recommended fallback language that includes a pre-cessation trigger and as of the first interest reset date after June 30, 2023, will transition to an ARRC recommended rate. A subset of instruments will have no effective means to transition away from LIBOR – for example debt and securitisation instruments issued under US law typically require unanimous consent from holders to amend the reference rate. These instruments, where governed by US law, will likely become reliant on new Federal Legislation - the LIBOR Act. Following June 30, 2023, these contract will move to the Federal Reserve Board’s selected fallback rate.
The ARRC’s recommended fallback rates seek to be commercially substantially equivalent to USD LIBOR by capturing both a risk-free rate, which is measured by different forms of Secured Overnight Financing Rate (SOFR), plus a fixed spread adjustment that measures the average difference between USD LIBOR and SOFR. Different markets adopt different conventions so rather than having a single fallback rate there are a family of rates, each of which is suitable in different markets.
Refinitiv USD IBOR Institutional Cash Fallbacks are production benchmarks for use in financial and nonfinancial corporate contracts. USD IBOR Consumer Cash Fallbacks 1-week and 2-month settings are production benchmarks for use in financial contracts. Pending RSBL board approval, at the start of July 2023 the remaining USD IBOR Consumer Cash Fallbacks will become production benchmarks for use in financial contracts. Prior to those dates the consumer rates are published as prototype to enable market participant to evaluate them and provide feedback. They should not be used for any other purpose including as a reference, index or benchmark in financial instruments or financial contracts.
Features & benefits
What you get with USD IBOR Cash Fallbacks
- The Refinitiv USD IBOR Cash Fallbacks seek to be commercially substantially equivalent to USD LIBOR by capturing both a risk-free rate, which is measured by different forms of Secured Overnight Financing Rate (SOFR), plus a fixed spread adjustment that measures the average difference between USD LIBOR and SOFR. Different markets adopt different conventions so rather than having a single fallback rate there are a family of rates, each of which is suitable in different markets.
- There are two distinct families of the Refinitiv USD IBOR Cash Fallbacks: one for consumer products and the other for institutional products. Within these families a range of conventions are supported.
- At Refinitiv, we have leveraged our many years’ experience administering regulated benchmarks such as WMR, CDOR and Refinitiv Term SONIA to create the Refinitiv USD IBOR Cash Fallbacks.
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USD IBOR Cash Fallbacks (shown as “Production” rates).
From 1 January 2022 if you have not signed up to a licensing agreement with Refinitiv for the use of Refinitiv USD IBOR Cash Fallbacks (“Fallback Rates”) you will be unable to use Fallback Rates for any commercial purpose or use whatsoever including, but not limited to as a reference rate in financial instruments, financial contracts or for valuation and pricing activities, or as an input into a benchmark or an index or otherwise.
Refinitiv Limited, its affiliates (“Refinitiv”) and its third party providers (together “Refinitiv and Third Parties”) do not guarantee the quality, accuracy and/or completeness of the Fallback Rates or any data included therein. Refinitiv and Third Parties make no express or implied warranties, representations or guarantees concerning the accuracy or completeness of the Fallback Rates or as to the results to be obtained by you, or any other person or entity from the use of the Fallback Rates or any data included therein. In no event shall Refinitiv and Third Parties have any liability for any loss of profits, special, punitive indirect, incidental or consequential relating to any use of the Fallback Rates.
Prototype USD IBOR Cash Fallbacks (shown as “Prototype” rates)
Prototypes of the USD IBOR Cash Fallbacks (“Prototype Fallback Rates”) are provided for informational purposes only. Refinitiv Limited, its affiliates (“Refinitiv”) and its third party providers (together “Refinitiv and Third Parties”) do not guarantee the quality, accuracy and/or completeness of the Prototype Fallback Rates or any data included therein. Refinitiv and Third Parties make no express or implied warranties, representations or guarantees concerning the accuracy or completeness of the Prototype Fallback Rates or as to the results to be obtained by you, or any other person or entity from the use of the Prototype Fallback Rates or any data included therein. In no event shall Refinitiv and Third Parties have any liability for any loss of profits, special, punitive indirect, incidental or consequential relating to any use of the Prototype Fallback Rates.
No information provided, displayed or contained in the Prototype Fallback Rates is intended to be, or should be construed or used as, a benchmark, whether as a reference rate in financial instruments, or financial contract; or for valuation and pricing activities ("Prohibited Use"). Whether you have entered into a contract with Refinitiv or not, you are not permitted to access or use in any way such information for the Prohibited Use and may breach the Benchmark Regulation and/or any contract with Refinitiv if you do. Refinitiv does not warrant that the Prototype Fallback Rates are provided in accordance with the Benchmark Regulation. "Benchmark Regulation" means, in respect of the EEA, EU Regulation 2016/1011 and in respect of another country, the equivalent legislation. If you are in any doubt about the meaning of Prohibited Use or your obligations under the Benchmark Regulation, you should seek professional advice.
Third party accreditation/disclaimers
USD ICE LIBOR, which is administered and published by ICE Benchmark Administration Limited (IBA), serves as an input for the Prototype Fallback Rates and/or Fallback Rates. LIBOR®, ICE LIBOR® and ICE Benchmark Administration® are registered trade marks of IBA and/or its affiliates. USD ICE LIBOR , and the registered trade marks LIBOR, ICE LIBOR and ICE Benchmark Administration, are used by Refinitiv with permission under licence by IBA. The Prototype Fallback Rates and/or Fallback Rates are not sponsored, endorsed or provided by IBA or any of IBA’s affiliates. IBA and its affiliates make no claim, predication, warranty or representation whatsoever, express or implied, as to the results to be obtained from any use of LIBOR® or Prototype Fallback Rates and/or Fallback Rates, or the appropriateness or suitability of LIBOR® or the Prototype Fallback Rates and/or Fallback Rates for any particular purpose to which it might be put, including with respect to the Prototype Fallback Rates and/or Fallback Rates. To the fullest extent permitted by applicable law, all implied terms, conditions and warranties, including, without limitation, as to quality, merchantability, fitness for purpose, title or non-infringement, in relation to LIBOR® and Prototype Fallback Rates and/or Fallback Rates, are hereby excluded and none of IBA or any of its affiliates will be liable in contract or tort (including negligence), for breach of statutory duty or nuisance, for misrepresentation, or under antitrust laws or otherwise, in respect of any inaccuracies, errors, omissions, delays, failures, cessations or changes (material or otherwise) in LIBOR® or Prototype Fallback Rates and/or Fallback Rates, or for any damage, expense or other loss (whether direct or indirect) you may suffer arising out of or in connection with LIBOR® or Prototype Fallback Rates and/or Fallback Rates or any reliance you may place upon it.
CME Group Benchmark Information is used under license as a source of information for certain Refinitiv products. CME Group has no other connection to Refinitiv products and services and does not sponsor, endorse, recommend, or promote any Refinitiv products or services. CME Group has no obligation or liability in connection with the Refinitiv products and services. CME Group does not guarantee the accuracy and/or the completeness of any benchmark information licensed to Refinitiv and shall not have any liability for any errors, omissions, or interruptions therein. There are no third-party beneficiaries of any agreements or arrangements between CME Group and Refinitiv.
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