Clarification of Facility Documentation Clauses for New USD LIBOR Loans

Dated 8 November 2021

We refer to the Circular on “Updates and FAQs on Supervisory Expectations for Benchmarks Transition” issued on 14 July 2021  (“the Circular”), which sets out expectations that new LIBOR contractsPlease refer to FAQ on “What is the definition of “new contracts?”. should contain adequate contractual fallback provisions that cater for a permanent discontinuation of the relevant LIBOR benchmarks, and facilitate an orderly transition to appropriate replacement ratesPlease refer to FAQ on “What is considered adequate contractual fallback provisions?”..

The Monetary Authority of Singapore (MAS) has since received queries from banks on whether the Loan Market Association’s (LMA) facility documentation clauses fulfil our expectation of adequate contractual fallback provisions for new USD LIBOR loans. 

To clarify on this matter, loan agreements incorporating the LMA’s “Revised Replacement of Screen Rate clause” (RRSC) published in May 2018The RRSC was first published as a stand-alone document in May 2018. It was last revised in December 2018, and was subsequently incorporated into the LMA recommended forms of facility agreement as of 28 February 2020. would meet MAS’ expectations of adequate contractual fallback provisions only if these include the clauses of the August 2020 Supplement. The clauses would identify a date to start the negotiations, as well as a long stop dateThis refers to the latest date where the amendments to the loan agreement to provide for the replacement benchmark rate will need to be put in place. to agree on a replacement benchmark rateWhile the RRSC was designed to be included into the facility documentation for syndicated loans, market participants had considered such clauses in bilateral loans as a form of signalling that amendments will have to be made in the future to incorporate a replacement benchmark. Facility documentation that adopts LMA’s Replacement of Screen Rate Clause and the RRSC without the August 2020 Supplement clauses do not meet MAS’ expectations for adequate contractual fallback provisions. prior to the 30 June 2023 cessation date for USD LIBOR.

FIs should put in place a robust monitoring process to track the remediation status of all legacy contracts, including those incorporating the RRSC with the August 2020 Supplement. FIs should also ensure that the relevant benchmark replacement rate is in force as a contractual fallback in its legacy contracts ahead of 30 June 2023. 

For the avoidance of doubt, while the adoption of the RRSC with the August 2020 Supplement meets MAS’ expectations as a contractual fallback mechanism, arrangements with more certainty, such as “hardwired” or “rate switch” mechanismsSuch mechanisms replace the LIBOR-based loan rate with an alternative reference rate-based rate upon occurrence of one or more specified events, thus removing the need for a subsequent negotiation and amendment process., continue to be preferred. FIs should advocate for these arrangements, which facilitate the contract remediation process by removing the need for future renegotiation.