LIBOR Legislation Signed into Law by President Biden

President Biden signed into law the Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”) as part of the Consolidated Appropriations Act of 2022. For several years financial regulators noted the importance of financial firms and other related parties’ transition away from dependence on LIBOR’s publication to alternative reference rates. More recently, federal legislators embraced this matter specifically due to concerns with contracts that do not contain adequate fallback language. The LIBOR Act is the work of a bipartisan group of legislators including Senator Jon Tester (D-MT), Senator Thom Tillis (R-NC), and Representative Brad Sherman (D-CA) working on language to address “tough legacy” contracts as well as other issues surrounding the transition away from LIBOR. The bill includes the following provisions:

• The Federal Reserve Board of Governors shall issue a regulation within 180 days identifying which version of SOFR will apply to contracts subject to the legislation;
• It authorizes the Federal Reserve to issue a regulation promulgating technical or administrative “conforming changes” that may be incorporated into contracts to facilitate the implementation, administration, and calculation of the replacement benchmark;
• A safe harbor from disputes arising out of the replacement of 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 that relates to the selection or use of a replacement rate or limiting the manner of calculating interest.

While certain LIBOR rates remain in publication currently, all versions of US Dollar LIBOR will cease after June 30, 2023.

The Forum recently held a webinar on the LIBOR Transition with Friedman Kaplan’s Anne E. Beaumont, head of the firm’s LIBOR Transition Task Force. That webcast can be viewed here.