The International Swaps and Derivatives Association (ISDA) publishes the market standard documents that govern derivatives contracts, including the 2006 ISDA Definitions.
The current definition of USD-LIBOR does not provide a workable solution in the case of a permanent cessation of LIBOR.
Therefore, to ensure proper future functioning of LIBOR based derivatives, ISDA released the IBOR Fallbacks Protocol as the market standard method to update the 2006 ISDA Definitions underlying existing agreements.
The updated definition of USD-LIBOR prescribes the use of the designated Fallback Rate when LIBOR is no longer available or representative. The Fallback Rate is a SOFR-based rate published by Bloomberg.
Adherence to the Protocol does not result in any change to the terms specified in the existing Confirmation including the swap fixed rate, payment date, notional schedule or floating rate spread.
How to Adhere
Adherence is completed online at ISDA.org.
Each party to an existing agreement will need to adhere to the protocol. If there are multiple parties or co-borrowers on an agreement, each party will need to complete the protocol.
Follow the instructions in the ISDA IBOR Fallbacks Protocol PDF found here.
Please note, when adhering you must use the exact legal entity name that is on the ISDA Agreement.
Adhere to the Protocol online as soon as practicable.
- Adherence is free for all parties until January 25, 2021
- After January 25, 2021, adherence will cost $500 per party
After you have successfully adhered to the ISDA IBOR Fallbacks Protocol, kindly inform your Relationship Manager at Washington Trust.
We thank you for you cooperation, and if you have any questions, please reach out to your Relationship Manager to arrange further discussion.
IBOR Fallbacks Protocol FAQs for Customers with Swaps
Q: Why am I being asked to adhere to the ISDA IBOR Fallbacks Protocol?
A: As a counterparty to an active USD-LIBOR derivative transaction with Washington Trust, we are requesting that you adhere to the ISDA IBOR Fallbacks Protocol so that we may incorporate certain market standard fallback definition changes to your derivative in preparation for the cessation of LIBOR. The ISDA IBOR Fallbacks Protocol is also commonly referred to the ISDA LIBOR Fallback Protocol or Fallback Protocol. We will refer to it in this FAQ as simply "the Protocol”.
Q: What is the Protocol?
A: The Protocol has been designed to be the standard and most efficient method of incorporating the necessary fallback definitions into legacy transactions to help ensure a smooth transition away from USD-LIBOR. This Protocol reduces the time and potential cost of negotiating bilateral documentation and ensures that the proper definitions are included. Washington Trust is adhering to the same Protocol to ensure that when your entity adheres the fallback definitions will apply to our derivative transactions.
Q: What does the Protocol accomplish?
A: The Protocol incorporates changes to the 2006 ISDA Definitions that govern USD-LIBOR transactions. These amended definitions provide clarity as to both the events that trigger a change in the index and the identification of that fallback index. This fallback rate will be a Secured Overnight Financing Rate (“SOFR”) based index called Fallback Rate SOFR.
Q: What will happen to my swap transaction when I adhere to the Protocol?
A: When both Washington Trust and you adhere to the Protocol, any active LIBOR-based derivative transaction between you will incorporate the IBOR Fallbacks Supplement to the 2006 ISDA Definitions (the “amended 2006 Definitions”) as of January 25, 2021. These legacy transactions will NOT transition from LIBOR to its fallback rate until the permanent cessation of LIBOR or an official announcement that it is no longer a representative benchmark.
Q: How much does adhering to the Protocol cost?
A: The cost for adhering to the Protocol is free to all until January 25, 2021. Afterwards the Protocol will still be available but will cost $500 per adhering entity.
Q: Do I need to adhere to the Protocol multiple times if I have swaps with different banks?
A: You will only need to adhere to the Protocol one time per entity. If XYZ, LLC has swaps with multiple banks adhering to the protocol once for XYZ, LLC will cover any swaps entered into by XYZ, LLC. Once both parties to a given transaction adhere to the Protocol the amended 2006 Definitions will apply.
Q: When should I adhere to the Protocol?
A: Washington Trust encourages you to review the information we have provided to you and adhere to the Protocol as soon as practicable. Although regulators will not compel banks to submit to the LIBOR panel after the end of 2021, it is likely that the rate will be effectively discontinued prior to the time. Further, regulators have confirmed that there will be no delays or extensions due to the COVID-19 pandemic.
Q: What will I need to do on the loan?
A: At this time, there is no further action required. The most important consideration is whether existing loan agreements contain effective “fallback language” in the documentation. The fallback language is designed to provide an orderly and transparent transition from LIBOR to the SOFR index.
All existing LIBOR-based loans are being reviewed to determine whether there is effective fallback language. If there is not effective fallback language in the existing loan documentation, your relationship manager will present loan amendments to you with the appropriate language for your consent. This process is expected to be complete no later than September 2021.
Q: What if I have questions on how to adhere to the Protocol?
A: We will provide a guide on how to adhere to the Protocol through ISDA.org. ISDA’s website also has helpful information that can be found at www.isda.org.
Q: What do I do after I adhere to the Protocol?
A: We kindly ask that you notify your relationship manager once you successfully have adhered to the Protocol.
Q: What if I have questions about LIBOR discontinuing and how this impacts me and my business?
A: We would be happy to discuss your questions and concerns about LIBOR discontinuing. Contact your bank representative.
Washington Trust appreciates your willingness and cooperation in adhering to the ISDA IBOR Fallbacks Protocol. This will prevent disruptions in your swap and will allow our institution to remain focused on helping your business achieves its goals in the future. If you have any questions, please call your Relationship Manager.
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