General

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


United States:

Federal LIBOR Transition Legislation Passed In Omnibus Spending Package


To print this article, all you need is to be registered or login on Mondaq.com.

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
    enforceability;

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

  • 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.

Footnotes

1.
Alabama LIBOR Discontinuance and Replacement Act of
2021

2.
Georgia HB 899; legal effects of the discontinuance of
LIBOR

3.
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
situations.

© Morrison & Foerster LLP. All rights reserved

POPULAR ARTICLES ON: Finance and Banking from United States

Cadwalader Corner Q&A: BNY Mellon’s Jason Granet

Cadwalader, Wickersham & Taft LLP

Jason Granet is the Chief Investment Officer at BNY Mellon, responsible for managing the firm’s securities portfolio as well as BNY Mellon’s LIBOR transition efforts.

LIBOR Federal Legislation Takes Big Step Forward

Cadwalader, Wickersham & Taft LLP

Federal legislation addressing the transition of legacy LIBOR contracts took a big step forward when it was included in the Omnibus bill passed late last night by the House of Representatives.

Next Post