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New York State Legislature Passes Bill Designed to Provide Smooth Transition Away from LIBOR
Practical Law Legal Update w-030-4027 (Approx. 5 pages)
New York State Legislature Passes Bill Designed to Provide Smooth Transition Away from LIBOR
by Practical Law Finance
| Published on 31 Mar 2021 • USA (National/Federal) |
The New York State Legislature passed New York Senate Bill 297B/Assembly Bill 164B, providing a framework for the upcoming transition away from USD LIBOR as the benchmark short-term interest rate for all contracts, securities, and instruments governed under New York law that use LIBOR as a benchmark and that do not otherwise include fallback provisions.
On March 24, 2021, the New York State Legislature passed New York Senate Bill 297B/Assembly Bill 164B, which provides a framework for the upcoming transition away from USD LIBOR as the benchmark short-term interest rate for all contracts, securities, and instruments governed under New York law that use LIBOR as a benchmark and that do not otherwise include fallback provisions. The bill is designed to provide legal certainty regarding the cessation of LIBOR, particularly for legacy contracts without effective fallbacks, by clarifying that:
- The recommended benchmark replacement rate, a benchmark replacement based on the Secured Overnight Financing Rate (SOFR), is a commercially reasonable substitute for LIBOR.
- The discontinuation of LIBOR or the use of a replacement rate does not constitute legal grounds for parties to refuse to perform contractual obligations or declare a breach of contract.
The bill clarifies the LIBOR replacement date, which is the later of:
- the date of the public statement or publication of information announcing that LIBOR will cease to be provided or is no longer representative; or
- the actual date on which the administrator of LIBOR ceases to provide LIBOR.
The bill defines "recommended benchmark replacement" as a benchmark replacement based on SOFR, which includes any recommended spread adjustment and any benchmark replacement conforming changes, that has been selected by a relevant recommending body, such as the Federal Reserve Board or the Alternative Reference Rates Committee (ARRC), with respect to the type of contract, security, or instrument.
In addition, the bill is designed to ensure contract continuity and provide a safe harbor from litigation by clarifying that the discontinuation of LIBOR does not:
- Affect or impair any person's right to receive payment under any contract or affect the amount or timing of such payment.
- Discharge or excuse performance under a contract.
- Give any person the right to unilaterally terminate or suspend performance under a contract.
- Constitute a breach of contract.
- Void or nullify a contract.
Likewise, under the bill, the selection or use of a recommended benchmark replacement does not constitute an amendment or modification of any contract or prejudice, impair, or affect any person's rights, interests, or obligations under a contract.
The bill is awaiting signature by the governor.
The passage of the bill follows announcements from US and UK regulators, as well as the ICE Benchmark Administration (IBA), LIBOR's administrator, that the publication of representative USD LIBOR will cease in mid-2023 (see Legal Updates, ICE Benchmark Administration (IBA) Issues Feedback Statement on Intention to Cease Publication of LIBOR Settings and FCA Statement on Future Cessation and Loss of Representativeness of LIBOR Benchmarks).
For further information on LIBOR replacement and benchmark fallbacks, see Practical Law's LIBOR Replacement Toolkit.
Update: On April 6, 2021, Governor Cuomo signed the bill into law.