Covid-19 disruptions expose Libor loan fallback flaws

Amending legacy loans during a crisis will prove challenging, ARRC member warns


The coronavirus outbreak has laid bare the shakiness of the loan market’s preferred fallback option for Libor-referencing loans, according to a senior member of the committee overseeing the transition to new risk-free rates in the US.

The Alternative Reference Rates Committee (ARRC), the Federal Reserve-sponsored group tasked with steering the market away from Libor, has recommended two fallback options for loans: the ‘hardwired’ approach and the so-called ‘amendment’ approach.

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