The Canadian Alternative Reference Rate working group (CARR) today published recommended fallback language for new and existing loan agreements where the interest rate benchmark is the Canadian Dollar Offered Rate (CDOR). This language has been developed by a CARR subgroup comprised of relevant subject matter experts.
The cessation of the London Interbank Offered Rate (LIBOR) has highlighted the significant economic, legal, operational and other difficulties that can arise when a major benchmark is discontinued, particularly for contracts with inadequate or no fallback language (language that describes what happens to the contract if the applicable reference rate is no longer available). CARR has developed this recommended fallback language in consultation with multiple stakeholders including both borrowers and lenders to address some of these issues for loan agreements that reference CDOR. CARR previously published recommended fallback language for floating rate notes referencing CDOR or the Canadian Overnight Repo Rate Average (CORRA).
The CARR co-chairs issued the following statement about the announcement:
“The LIBOR transition has underscored the importance of having precise fallbacks for financial benchmarks. CARR has drafted this recommended language to provide market participants with a convention that they can use in new or revised loan agreements. With the cessation of CDOR set for June 28, 2024 it is advisable that borrowers and lenders include a robust fallback to CORRA in their documentation as soon as practicable.”
Canada established CARR, a working group sponsored by the Canadian Fixed-Income Forum, to coordinate Canadian interest rate benchmark reform. CARR’s mission is to ensure Canada’s interest rate benchmark regime is robust, resilient and effective in the years ahead. Over the coming transition period, CARR will support the transition from CDOR to CORRA as a key financial benchmark, including working to potentially create an IOSCO-compliant Term CORRA rate.
Visit CARR’s webpage for up-to-date information on the transition, including all of CARR’s key documents, and to sign-up to receive email updates from CARR.
Financial Markets Department
Bank of Canada
Managing Director and Vice Chair
CIBC Capital Markets
Bank of Canada