In an effort to avoid some of the issues that arise when a major financial benchmark is scrapped, an industry group has released recommendations for loans based on the soon-to-be-discontinued Canadian Dollar Offered Rate (CDOR).

The Canadian Alternative Reference Rate working group (CARR) published recommended “fallback language” for loan agreements — which sets out what happens in the event that the benchmark used in the loan agreement isn’t available.

The group said that its recommendations are part of a “broader effort to develop and promote market standards for products referencing risk‐free rates, both in the Canadian marketplace and globally as part of benchmark reform efforts.”

The recommended language was developed by a subcommittee of the CARR group — in consultation with borrowers, lenders, and other stakeholders — for both new and existing loans that are geared to CDOR, which is set to be eliminated in mid-2024 and replaced by the Canadian Overnight Repo Rate Average (CORRA).

The aim is to avoid some of the “significant economic, legal, operational and other difficulties” that arose when the London Interbank Offered Rate (LIBOR) benchmark was discontinued.

“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,” said the group’s co-chairs in a statement.

“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,” they added.