Federal LIBOR Transition Legislation Passed in Omnibus Spending Package

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 legislation[1] or have introduced bills providing for LIBOR transition[2][3].

[1] See Alabama LIBOR Discontinuance and Replacement Act of 2021

[2] See Georgia HB 899; legal effects of the discontinuance of LIBOR

[3] See Florida CS/HB 925: Benchmark Replacements for London Interbank Offered Rate