On June 4, 2021, the Loan Market Association (LMA) published a recommended form of its reference rate selection agreement, which has been updated following market feedback. The reference rate selection agreement has been updated to reflect the LMA’s suite of RFR-based documentation and rate switch agreements, and the conventions found in those documents.

The reference rate selection agreement is designed to assist market participants when transitioning legacy loan agreements and is intended to streamline the process of transitioning to RFRs through the use of the same form of agreement on different transactions. The Reference Rate Selection Agreement allows parties to agree on the applicable alternative compounded RFR to be used and other relevant terms relating to the use of that compounded RFR in respect of their legacy syndicated loan transactions based on one of the LMA’s forms of facility agreements that use a forward looking IBOR rate.

Market participants should note that the Selection Agreement only sets out the parties’ agreement on key commercial terms on the selection of the RFR. A further amendment agreement will be required to incorporate the necessary detailed drafting into the facility agreement. The Selection Agreement further authorises the agent and the borrowers/obligors to determine the necessary drafting that will be required for the facility agreement and the agent and the borrowers/obligors will enter into such amendment agreement to implement the necessary drafting.

The use of the Selection Agreement is only a suggestion. Parties can also make use of a single amendment agreement where all the amendments to the facility agreement is agreed and implements by the parties.

The Selection Agreement is made up of three parts.

• The first part sets out a short summary of the agreement, along with the signature pages.
• The second part is the Selection Sheet. This is a tick-box section which sets out all of the compounded risk-free reference rates and the options that parties may choose to select. Additionally, parties are able to include bespoke terms. Users should select the options in line with their commercial agreements.
• Part three sets out the terms and conditions applicable to the rate selection contained in the Selection Sheet. Whilst these terms can be amended by the parties, the publication of standard form terms and conditions is designed to minimise the number of terms that need to be negotiated.

Parties should carefully consider their preferred approach – whether they prefer to make use of  (i) the two step process and enter into a Selection Agreement whereafter the agents and the borrowers/obligors would enter into the relevant amendment agreement or (ii) a one step process and agree and implement the relevant amendments pursuant to one amendment agreement between all parties.