On March 30, 2021, the LMA published its exposure draft RFR documentation as recommended forms, and updated the documentation to reflect, among other things, the Sterling Risk-free Rate Working Group’s (the Working Group) updated conventions. The LMA also replaced their single currency SONIA and SOFR exposure drafts with two recommended form single currency RFR facility agreements, and updated their RFR terms.
Recommended Forms
The LMA first published their exposure draft multicurrency term and revolving facilities agreement incorporating rate switch provisions (lookback without observation shift) in September 2020. This was then revised in November 2020 following feedback from market participants, and another exposure draft was published based on a lookback with an observation shift (the Rate Switch Agreements).
In January 2021, the LMA published exposure draft multicurrency term and revolving facilities agreements (Multicurrency Compounded/Term Rate Agreements) incorporating backward-looking compounded rates and forward-looking interbank term rates (more information on these can be found in our earlier blog post).
The LMA has now decided to publish these exposure drafts as recommended forms. This decision has been made in view of positive market feedback and the impending working group milestones regarding the cessation of new LIBOR lending. Despite their publication as recommended forms, parties are still free to adapt the forms to their circumstances.
Updates to Rate Switch Agreements and Multicurrency Compounded/Term Rate Agreements
These agreements were designed to reflect the Working Group’s SONIA Loan Market Conventions (the Conventions) issued in September 2020. As such, these agreements have been amended following the update to the Conventions earlier this month.
The Rate Switch Agreements have also been updated to include a provision acknowledging the FCA’s March 5 announcement on the cessation of certain LIBOR tenors, such that the agent will not be required to notify the parties of the Rate Switch Trigger Event.
Single Currency Compounded Rate Facilities Agreement
Exposure drafts of single currency SONIA and SOFR facility agreements were originally published by the LMA in September 2019, and later consolidated and updated to align with the Conventions and the provisions of the Rate Switch Agreements. The LMA has now replaced these exposure drafts with the recommended form Single Currency Compounded Rate Facilities Agreements, which include schedules for the selection of sterling, U.S dollars or Swiss francs.
RFR Terms
The LMA has also updated their RFR Terms for the use of compounded RFRs to align with the changes detailed above, and published these as a recommended form.
Market participants are reminded of the upcoming milestone to cease issuing new LIBOR linked loans and are encourage to use the LMA’s RFR documentation and adapt their terms as necessary.
