Market Participants Split on Trigger Events for IBOR Cessation

ISDA released the preliminary results of its consultation concerning pre-cessation issues for certain interbank offered rates ("IBORs") titled "Consultation on Pre-Cessation Issues for LIBOR and Certain Other Interbank Offered Rates (IBORs)" (the "Pre-cessation Consultation").

ISDA said that preliminary results of a consultation show no consensus on whether contemplated fallback amendments to certain floating rate options that reference an IBOR should include a fallback trigger.

In its May 2019 Pre-cessation Consultation, ISDA requested feedback on whether contemplated fallback amendments to certain floating rate options that reference an IBOR (the "IBOR Amendments") should include a fallback trigger. As previously covered, ISDA requested the feedback after a public statement by the regulatory supervisor for the administrator of an IBOR announced that such IBOR is no longer representative of the related underlying market (a "Pre-cessation trigger" or "PCT").

ISDA said that respondents to the Pre-cessation Consultation expressed a wide variety of views and opinions regarding whether and how to implement PCTs. No opinion or view was expressed by a majority of the respondents. According to ISDA, the responses were split between those who:

• support including a PCT as a fallback trigger in the IBOR amendments without any optionality;

• support including a PCT as a fallback trigger in the IBOR amendments subject to certain qualifications or with optionality (e.g., providing market participants the flexibility to not apply PCTs to certain transactions); or

• do not support including a PCT as a fallback trigger in the IBOR amendments.

In September 2019, ISDA expects to publish an anonymized and aggregated summary of the feedback to the Pre-cessation Consultation. ISDA hopes to further consult on a proposed documentation solution that provides for the efficient incorporation of PCTs, while mitigating concerns and avoiding unnecessary complications and optionality that could jeopardize broad market adoption of the IBOR Amendments.