Legal development

USD LIBOR tough legacy federal legislation signed into law

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    On 15 March 2022, US President Joe Biden signed into law the Consolidated Appropriations Act, 2022 which, amongst many other things, contains a federal legislative solution to the problem of "tough legacy" USD LIBOR contracts, securities, and instruments.

    This new federal LIBOR law takes an approach similar to the legislation that was initially proposed by the Alternative Reference Rates Committee (ARRC) in 2020 (discussed here) and has since been passed by the State of New York (discussed here) and several other states. The federal legislation applies to all US law contracts and will make further state-by-state action unnecessary.

    In a similar manner to these other laws, this new federal law introduces statutory provisions that will apply upon the discontinuation or loss of representativeness of the remaining USD LIBOR tenors (overnight, one-month, three-months, six-months and twelve-months). As announced by IBA and the UK's Financial Conduct Authority in March 2021 (discussed in our briefing here), these dates are as follows:

    • on 30 June 2023, publication of overnight and twelve-month USD LIBOR will cease; and
    • on 30 June 2023, one-month, three-month and six-month USD LIBOR will cease to be representative of the underlying market.

    The core of this new federal law is the mandatory replacement, by operation of law, of the applicable USD LIBOR rate under any US law-governed contract, security or instrument that either contains no fallback provisions or falls back to a replacement rate based on USD LIBOR (for example, to the last reported rate). These "tough legacy" contracts, securities and instruments will be automatically amended on the first London banking day after 30 June 2023 (unless the Federal Reserve Board determines that any LIBOR tenor will cease to be published or cease to be representative on a different date) so that references to USD LIBOR are replaced with references to SOFR, as adjusted to incorporate the relevant spread adjustment specified in the new law and to make any conforming changes recommended by the Federal Reserve Board.

    As with the earlier state legislation, this new federal law includes substantial safe harbour and continuity of contract provisions.

    Similar regimes have also been implemented in the UK and the EU by way of amendments to the UK Benchmarks Regulation and the EU Benchmarks Regulation, respectively. For more information, see our LIBOR Transition Hub.

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