Interest rates - reference rates - transition from LIBOR to other RFRs - rate switching.
In this context, an amendment approach refers to the mechanism for switching a reference interest rate from LIBOR to another appropriate risk-free rate, because of the discontinuation of LIBOR.
The wording of provisions in loan agreements broadly follow either a hardwired approach or an amendment approach to the rate switch.
An amendment approach allows the parties to negotiate appropriate amendments to the loan agreement, following the occurrence of specified trigger events.
Trigger events specified in documentation may include:
- Cessation events. For example a public statement or announcement that the relevant reference rate has ceased - or will cease - permanently or indefinitely.
- Pre-cessation events. For example a similar statement or announcement declaring that the relevant reference rate is no longer representative of the underlying market the rate seeks to measure.