August 6, 2020 - The LSTA’s recent webcast, “Surviving the End of LIBOR: Tools and Tips From the Trenches” answered that question in addition to unpacking the recently launched SOFR Conventions for Syndicated Loans. (The Conventions are covered by the LSTA in detail here.) These Conventions are applicable to both legacy and new SOFR loan originations and are particularly relevant for the ARRC’s updated hardwired fallback language. As previously covered, the updated fallback language provides that once a trigger event occurs, the replacement for LIBOR shall be determined in accordance with the following waterfall: 1) Term SOFR, 2) if that is not available, Daily Simple SOFR, and 3) if that is not available, a benchmark selected through a streamlined amendment process. While Term SOFR remains the preference of loan market participants, we do not know that Term SOFR will be available for use when LIBOR transition occurs. Therefore, the focus here is on Daily Simple SOFR. “Daily Simple SOFR” is defined as, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body (e.g. the ARRC) for determining “Daily Simple SOFR” for syndicated business loans. In this way, the ARRC Conventions will be the primary source for the conventions applicable to Daily Simple SOFR in the fallback language and it is important that market participants educate themselves about these conventions. (It is important to note that the definition also provides that the Agent may decide that, if any convention is not administratively feasible for them, then an Agent may establish another convention in its reasonable discretion.)
The publication of the refreshed hardwired fallback language and the subsequent publication of the Conventions are important steps in the LIBOR transition process given that the ARRC best practice for business loans recommend the inclusion of hardwired fallback language in syndicated loans by the end of 3Q20.