Originations in RFRs
Continuing a trend from 2018, there has been an increasing volume of floating rate note transactions that bear interest by reference to risk-free rates (RFRs). Issuances in SONIA and SOFR have been gaining popularity amongst issuers and investors of floating rate notes (FRNs). In addition, a SONIA loan transaction recently closed in London and there have been a number of securitizations referencing SONIA. While transition momentum is building in the FRN market, there remains much to do to convince market participants to commit fully to a transition to RFRs.
Finalized ARRC fallback provisions
In the US, the Alternative Reference Rates Committee (ARRC) finalized its recommended contractual fallback language for US dollar LIBOR in syndicated loans, floating rate notes, securitizations and bilateral loans. There is evidence that some issuers and investors have included these provisions in documentation.
ISDA consultation on pre-cessation issues
In March, the Official Sector Steering Group (OSSG) encouraged ISDA to ask for market opinion on the addition of a third trigger event to ISDA's suggested contractual fallback language. This trigger
would take effect prior to the permanent cessation of LIBOR if the UK Financial Conduct Authority, in its capacity as the regulator of LIBOR, were to find LIBOR to be unrepresentative of underlying financial reality. In May, ISDA launched a consultation on pre-cessation issues for LIBOR and certain other IBORs, which, if supported by sufficient market consensus, would lead to a pre-cessation trigger being added to the two permanent index cessation triggers that ISDA first consulted on in 2018. While the deadline for responses to this consultation has now passed (as of 12 July), the results have not yet been published by ISDA.