December 13, 2021 - by Tess Virmani. Today the LSTA’s Primary Market Committee received a draft advisory setting forth model fallback language provisions for use in a BSBY-referenced credit agreement (“BSBY Fallback Language”). The language is complemented by steps Bloomberg will take to support the BSBY Fallback Language – and those steps are described here in the draft of the BSBY updated Methodology (subject to final approvals).

SOFR (and variants thereof) have been and are expected to be the replacement benchmarks for U.S. Dollar (USD) LIBOR in the vast majority of USD-denominated cash products and derivatives. However, credit sensitive rates may also play a role where market participants see a credit sensitive rate as a more appropriate benchmark for use in certain transactions. In response to the request of members, the LSTA has prepared BSBY Fallback Language designed for voluntary use in credit agreements referencing the Bloomberg Short Term Bank Yield Index (“BSBY”), a credit sensitive rate.

The BSBY Fallback Language was developed in active consultation with a dedicated working group of members over the course of several months. The result is a set of robust fallback provisions which hardwire the replacement of BSBY with a SOFR-based rate (plus adjustment) upon the occurrence of certain objective, readily identifiable trigger events. The BSBY Fallback Language offered for member consideration builds on and tailors the architecture popularized in the ARRC’s fallback language recommendations for business loans.

In light of the extensive effort of the working group in putting the BSBY Fallback Language together, only fatal flaw comments are requested.

The LSTA intends to finalize the advisory this week. For more information, please contact Tess Virmani.