The launching of forward-looking rate versions of U.S. dollar interbank offered rate (USD IBOR) cash fallbacks by a large financial data provider was welcomed Monday by the group that developed the rate, the group said Monday.
In a statement, the Alternative Rates Reference Committee (ARRC), a group established by the Federal Reserve and the Federal Reserve Bank of New York to develop an alternative to the now-defunct London Interbank Offered Rate (LIBOR), said it welcomed the move by London-based Refinitiv to launch the USD IBOR cash fallbacks.
Refinitiv said the cash fallbacks will help legacy USD LIBOR contracts (which become void after June 30, 2023) to “smoothly transition away from USD LIBOR and provide market participants, including lenders and borrowers, with an industry standard agreed rate, which can clearly and easily be referenced in contracts.”
The ARRC said the move by Refinitiv, which says it has more than 40,000 customers and 400,000 end users in approximately 190 countries, will be especially helpful for legacy consumer loans, “where consumers will need clear and simple resources that can provide them access to the new rate that will replace LIBOR in their contracts.”
The ARRC said it has worked with Refinitiv in its design of a specific web page that consumers can be directed to, to find the most recently available rate and its recent history. ARRC said that Refinitiv will also separately publish institutional cash fallback rates for use with other, non-consumer cash products, which it said a wider variety of market participants may find useful.
In addition, the ARRC said noteholders and servicers wishing to use the ARRC recommended rates as a replacement to LIBOR after June 30, 2023, in legacy consumer loan contracts can refer consumers to the Refinitiv USD IBOR Consumer Cash Fallback rate corresponding to the one-month, three-month, six-month, or 12-month tenor of LIBOR used in the loan, as applicable.
“These fallback rates will include the 1-year ‘transition period’ spread adjustment recommended by the ARRC and included in the Adjustable Interest Rate (LIBOR) Act,” the group said. The legislation was enacted this year, designed to minimize legal and operational risks and adverse economic impacts associated with the transition away from LIBOR. The legislation is also aimed at providing “greater certainty to a diverse array of corporate borrowers and lenders, as well as to retail bondholders and consumers, whose student loans, mortgages, and investment accounts it will protect from disruption,” ARRC noted.
The committee also said Refinitiv will publish indicative prototypes of the consumer fallback rates through June 30 of next year, when the transition-period spreads will be officially set and incorporated into the published fallback rates. “The indicative consumer cash fallback rates are intended to allow servicers to transition their systems and for testing purposes only,” the group said.
ARRC’s recommended fallbacks for legacy consumer loans take effect when the transition period spread has been officially set, after June 30, 2023, ARRC noted.