On March 15, 2022, President Joe Biden signed into law the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate Act (LIBOR) (the “Act”). The recently passed law facilitates the transition from the London Interbank Offered Rate (LIBOR). For US dollar loans, LIBOR will no longer be available after June 2023 (two-month and one-week interest periods ceased in December 2021). Billions of dollars in financial contracts refer to LIBOR as the benchmark for prevailing interest rates and for calculating certain payments and obligations. Many of these agreements, especially large syndicated loan agreements, contain fallback or replacement rates that will allow the parties to the agreement to determine interest after LIBOR is withdrawn. Many other agreements, however, have no fallback or replacement rates, making interest impossible to determine. The law includes:

  • A transition to a replacement rate chosen by the Board of Governors of the Federal Reserve System, but only for agreements with no fallback or replacement rate;
  • Application of conforming or technical amendments to agreements to ensure their continued administration and enforceability;
  • A safe harbor against liability as a result of the LIBOR transition;
  • An amendment to the law on trust indentures to prevent a replacement of LIBOR from constituting an impermissible interference with the rights of covered parties; and
  • Preemption of any provision of any national or local law:
    • Relating to the selection or use of a baseline replacement or related compliance changes; Where
    • Expressly limiting the method of calculating interest, including capitalization of interest, to the extent that this provision applies to the selection or use of a benchmark replacement selected by the Board of Governors or changes consistent with the benchmark replacement.

In March 2021, New York State passed a similar law to address financial contracts without LIBOR fallback or replacement rates. Other states have passed similar legislation[1] or have introduced bills providing for the transition from LIBOR[2][3].

[1] Alabama LIBOR Abandonment and Replacement Act of 2021

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

[3] Florida CS/HB 925: Benchmark replacements for the London Interbank Offered Rate

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