On Wednesday, December 8, 2021, the U.S. House of Representatives passed the Adjustable Interest Rate (LIBOR) Act of 2021, which facilitates the transition away from the London Interbank Offered Rate (LIBOR). For U.S. dollar loans, LIBOR will not be available for two-month and one-week interest periods after December 2021, and will not be available after June 2023 for other interest periods. 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, and interest would be impossible to determine. This bill 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 changes to these agreements to ensure their continued administration and enforceability;
- a safe harbor from liability as a result of the transition from LIBOR; and
- an amendment to the Trust Indenture Act to avoid a LIBOR replacement being an impermissible impairment of the rights of covered parties.
The bill will now move to the U.S. Senate for approval. In March 2021, New York State passed a similar law to address financial contracts with no LIBOR fallback or replacement 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
