Federal LIBOR Transition Legislation Passed In Omnibus Spending Package – Finance and Banking – United States – Mondaq News Alerts

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Federal LIBOR Transition Legislation Passed In Omnibus Spending Package

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On March 15, 2022, President Joe Biden signed into law the Consolidated Appropriations Act, 2022, which
includes the Adjustable Interest Rate (LIBOR) Act (the
“Act”). The newly passed law facilitates the transition
away from the London Interbank Offered Rate (LIBOR). For U.S.
dollar loans, LIBOR will not be available after June 2023
(two-month and one-week interest periods ceased in December 2021).
Trillions of dollars of financial contracts reference LIBOR as a
benchmark for prevailing interest rates and for calculating certain
payments and obligations. Many of these agreements, particularly
large syndicated loan agreements, contain fallback or replacement
rates that will allow the agreement parties to determine interest
after LIBOR’s retirement. Many other agreements, however, have
no fallback or replacement rate, making interest impossible to
determine. The Act includes:

  • A transition to a replacement rate selected by the Board of
    Governors of the Federal Reserve System, but only for agreements
    without a fallback or replacement rate;

  • An application of conforming or technical changes to the
    agreements to ensure their continued administration and

  • A safe harbor from liability as a result of the transition from

  • An amendment to the Trust Indenture Act to avoid a LIBOR
    replacement being an impermissible impairment of the rights of
    covered parties; and

  • Preemption of any provision of any state or local law:
    • Relating to the selection or use of a benchmark replacement or
      related conforming changes; or

    • Expressly limiting the manner of calculating interest,
      including the compounding of interest, as that provision applies to
      the selection or use of a Board of Governors-selected benchmark
      replacement or benchmark replacement conforming changes.

In March 2021, New York State passed a similar law to address financial
contracts with no LIBOR fallback or replacement rate. Other states
have passed similar legislation1 or have introduced
bills providing for LIBOR transition23.


Alabama LIBOR Discontinuance and Replacement Act of

Georgia HB 899; legal effects of the discontinuance of

Florida CS/HB 925: Benchmark Replacements for London Interbank
Offered Rate

Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular

© Morrison & Foerster LLP. All rights reserved

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