LIBOR Transition – Fallback Language & Valuation Approaches

May 2021

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As with any major transition initiative, unforeseen and unaccounted for surprises are typically encountered along the way. Undergoing a London Interbank Offered Rate (LIBOR) transition from beginning to end is no different. In order to facilitate a smooth transition for cash products and derivatives, regulators have been enacting a phased-out approach to LIBOR cessation.

This article, which includes contributions from law firm Paul Hastings, LLP, presents a detailed view of the various cash and derivatives instrument types and the applicable industry-recommended contractual fallback language as well as the valuation approaches contemplated for each in connection with USD LIBOR transition. It also includes the best practice recommendations that the Alternative Reference Rates Committee (ARRC) published for each product to guide market participants.