On 4 May 2023, the European Securities and Markets Authority (ESMA) published guidance produced by the Working Group on Euro Risk-Free Rates (the working group), for corporate lending products for implementing the recommendations on EURIBOR fallback trigger events and €STR-based EURIBOR fallback rates.
The working group previously published recommendations for EURIBOR fallback trigger events and €STR-based EURIBOR fallback rates in May 2021. However, the working group understands that these recommendations are not generally being adopted in corporate lending products. This has been for various reasons including some market participants choosing not to adopt the recommendations, for example, due to the previous lack of term €STR rates; EURIBOR not scheduled to be discontinued; and parties preferring to use a less robust ‘amendment approach’ to fallbacks. As a result, the working group decided at its December 2022 meeting, to provide further guidance on corporate lending products to foster the adoption of €STR-based EURIBOR fallbacks.
Therefore, this guidance is specific to corporate lending products and is addressed to all parties active in the EURIBOR-referencing corporate lending products, including lenders, borrowers, investors, advisers and legal firms. It does not apply to any other cash products covered by the May 2021 recommendations.
The guidance is aligned with, and does not change, the May 2021 recommendations and has therefore not been subject to consultation. It highlights the key recommendations, including loan conventions, in respect of corporate lending products contained within the May 2021 recommendations. It seeks to highlight the flexibility provided for within the May 2021 recommendations, as well as being mindful of best practice which has developed in the international syndicated lending markets.