The launch of the Protocol and the Supplement represents a key landmark in the transition away from IBORs but is not a one-stop solution.

By Yvette D. Valdez, Becky Critchley, Adam Bruce Fovent, J. Ashley Weeks, Deric Behar, and Anna Lewis-Martinez

On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021. ISDA has also published a related set of Frequently Asked Questions, as well as a User Guide to IBOR Fallbacks and RFRs, to assist market participants in navigating the Protocol and the Supplement.

The Protocol and the Supplement, which take effect on January 25, 2021, provide robust fallback provisions to be applied upon the permanent cessation of a relevant IBOR or a pre-cessation announcement made with respect to LIBOR. The Protocol provides an efficient amendment mechanism for mutually adhering counterparties to incorporate these fallback provisions into legacy contracts. However, the Protocol and the Supplement do not themselves modify the terms of underlying floating rate exposures or ensure such exposures transition in the same manner as any interest rate derivatives entered into to hedge those exposures.

Market participants should work closely with counsel and financial advisors to ensure that they understand the role and impacts of the Protocol and the Supplement within their overall IBOR transition strategy.

This Client Alert provides a summary of the Protocol and the Supplement and offers takeaways for the market.