What You Need to Know About LIBOR Transition to SOFR
What you need to know
On July 29th 2021, the Alternative Reference Rates Committee (ARRC) announced that it is formally recommending the CME Group's forward-looking Secured Overnight Financing Rate term rates (TERM SOFR) as the index to replace the sunsetting LIBOR (London Interbank Offered Rate). These rates are officially published on the CME website. WaFd Bank launched TERM SOFR loan products on January 1, 2022. Similar to LIBOR, TERM SOFR is available to WaFd Bank borrowers.
What is the Alternative Reference Rates Committee (ARRC)?
A group of market participants organized by the Federal Reserve and New York Fed to help ensure a successful transition from Libor to a more robust reference rate.
Objectives of ARRC:
- Identify alternative reference rates and determine whether identified alternative rates are compliant with the IOSCO's Principals for Financial Benchmarks.
- Identify best practices for contract robustness to ensure contracts are resilient to the possible cessation or material alteration of existing of new benchmarks.
- Develop an adoption plan to outline the necessary steps so that market participants could make the adoption more successful.
- Create a timeline and an implementation plan with metrics of success.
ISDA publishes updated protocol
ISDA Protocol Amendments and updated 2006 ISDA Definitions with fallbacks became effective
Cessation of remaining Libor Tenors
ARRC recommends a forward-thinking Term SOFR reference Rate
Cessation of week 1 & 2 month LIBOR, final deadline for LIBOR Originations
Cessation of remaining LIBOR Loans
Term SOFR Replacement Index In Use