Client Alert

Bloomberg Begins Publishing Fallback Rates for Certain Key IBORs

July 24, 2020

By Joyce Sophia Xu, Michael Spafford, Diona Park, Daren Stanaway & Matthew Smith

On July 21, 2020, Bloomberg and the International Swaps and Derivatives Association, Inc. (“ISDA”) announced that Bloomberg Index Services Limited (“BISL”) has started to publish fallback rates for certain key interbank offered rates (“IBORs”).[1] In July 2019, ISDA selected Bloomberg as the official fallback adjustment vendor to calculate and publish various adjusted risk-free rates (“RFRs”) as IBOR fallbacks. ISDA is expected to publish amendments to the 2006 ISDA Definitions and a related protocol soon, which will contractually embed the IBOR fallbacks in ISDA’s derivatives documentation, with an anticipated effective date around the end of the year.

Calculations published by BISL include fallback rates for the following IBORs across various tenors: the Australian dollar Bank Bill Swap Rate (BBSW), the Canadian Dollar Offered Rate (CDOR), Swiss franc LIBOR, EURIBOR, euro LIBOR, sterling LIBOR, HIBOR, euroyen TIBOR, yen LIBOR, yen TIBOR, and U.S. dollar LIBOR. BISL calculates and publishes the following:[2]

  1. Adjusted RFRs: For publicly available RFRs, such as the Secured Overnight Financing Rate (SOFR), daily value would be compounded in arrears for each relevant term.

  2. Spread Adjustment: The spread adjustment is based on the historical median over a five-year lookback period calculating the difference between an IBOR for each tenor and the relevant adjusted RFR for that tenor prior to a cessation or pre-cessation trigger event.

  3. Fallback Rate: The “all in” fallback rate, which is the sum of the adjusted RFR and the spread adjustment for each relevant tenor.

The calculations and publications of the fallback rates are accessible through various channels, including the Bloomberg Terminal and Bloomberg’s website.[3] BISL will be calculating the fallback rates on an “indicative” basis (i.e., not forward-looking or a prediction of what the fallback rates will be) until such time as a trigger event in the 2006 ISDA Definitions occurs and the spread adjustment becomes fixed.

Market participants are encouraged to pay close attention to these newly published fallback rates and use them to help formulate a smooth transition strategy away from LIBOR. As Scott O’Malia, ISDA’s Chief Executive, stated: “The introduction of robust new fallbacks for derivatives contracts will significantly reduce the systemic risk posed by a permanent cessation of a key IBOR. Publishing indicative spread adjustments and all-in fallback rates now will help firms as they prepare to implement the new fallback methodology.”[4]

[1] Bloomberg Begins Publishing Calculations Related to IBOR Fallbacks,” available here [hereinafter, “ISDA’s Announcement”].

[2]   IBOR Fallbacks Fact Sheet,” available here.

[3]  BISL’s calculations are publicly available on the Bloomberg website, available here, on a delayed basis.

[4]  See ISDA’s Announcement.

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