On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was signed into law, as Division U of the enactment of the Consolidated Appropriations Act of 2022. As the London Interbank Offered Rate (“LIBOR”) index is set to end on June 30, 2023, the LIBOR Act provides plans for transitioning both consumer and non-consumer agreements that use LIBOR index as a benchmark (“LIBOR contracts”) to Federal Reserve Board ‘s(“FRB”) selected replacement benchmark, which is the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York (“SOFR”).
The LIBOR Act creates both optional and default transition plans. The default transition plan is for LIBOR contracts that either (i) have no provisions for determining a replacement benchmark if the LIBOR index is no longer available (“fallback provision”), (ii) that have certain fallback provisions that do not identify a specific LIBOR replacement benchmark and a party with the right or obligation to determine the replacement benchmark (“determining person”), or (iii) that have fallback provision but a determining person does not make a selection. The default transition plan sets the SOFR as the replacement benchmark. The optional transition plan allows a determining person to select the SOFR as the replacement benchmark to the LIBOR index.
Importantly, the LIBOR Act provides a safe harbor from claims and liabilities for selecting the SOFR as the replacement benchmark either by default or by choice.
As mentioned, the LIBOR Act contain specific provisions concerning the implementation of the transition from the LIBOR index for consumer loans, commercial loans and student loans.
The LIBOR Act requires the FRB to issue regulation to implement the LIBOR Act by early September 2022.
If you have any questions concerning the LIBOR Act, or need assistance in implementing a LIBOR transition plan, please contact Solomon Maman.Download Related Document