How a new market reference rate can be used now and what factors market participants should consider before selecting an alternative rate are outlined in a new guide announced Tuesday.
In a release, the Alternative Reference Rates Committee (ARRC) – a group organized by the New York Federal Reserve Bank to recommend alternatives to the soon-to-be-defunct London Interbank Offered Rate (LIBOR) – said its “Guide to Published SOFR Averages” provides financial and nonfinancial market participants with key information on transitioning from LIBOR, which will no longer be used after the end of the year. Existing contracts using LIBOR will no longer be supported after June 30, 2023.
ARRC said the guide details how SOFR (Secured Overnight Finance Rate) averages can be used today and what factors market participants should consider before selecting the alternative rate they use. The guide was issued in conjunction with a second series of webinars sponsored by ARRC also held Tuesday. The webinars discuss SOFR, term rates, and loan market developments.
To meet nonfinancial corporates’ needs and help inform their LIBOR transition plans, ARRC said the guide outlines the various ways that market participants can use averages of overnight SOFR in financial products now. It also covers the conventions the ARRC has previously provided for using SOFR averages now, including for student loans, intercompany loans, and securitizations.
ARRC said the guide was developed with input from a survey it conducted in March among nonfinancial groups. ARRC said the survey found 90% of respondents wanted to be offered SOFR-based rate choices, including SOFR averages that can be applied in advance and in arrears.