Cliff’s Notes 4 Legal: All About the New LIBOR Legislation
In the United States, the transition from the LIBOR floating interest rate structure has been complex and fraught with difficulty. Companies have been scrambling to meet the different deadlines for the multitude of LIBOR Interest Rates.
Earlier this week, new legislation was signed offering guidance to those with LIBOR, or the London Interbank Offered Rate, in their contracts. The London Interbank Offered Rate is an interest rate average calculated from estimates submitted by leading banks in London where each bank approximates what it would be charged were it to borrow from other banks. LIBOR is unsecured and determined by private entities.
On March 15, 2022, President Biden signed into law The Consolidations Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act.
The LIBOR Act includes:
A Uniform Benchmark Replacement process for legacy contracts with LIBOR language that do not contain fallback language.
A safe harbor for lenders from litigation when choosing a replacement rate such as SOFR Rate.
Allowances for contracts that contain LIBOR language as well as a clear replacement rate to continue to operate based on their current terms.
LIBOR references in Federal Law.
Why is this important?
LIBOR is used in trillions of dollars of contracts throughout the world.
A large number of contracts do not contain language about a replacement rate for LIBOR if it’s not available or no longer exists.
There is the potential for a significant amount of litigation over the lack of clarity on which interest rate to apply when LIBOR ceases to be used.
Important Date: June 30, 2023. The LIBOR rate will expire for:
Overnight U.S. LIBOR
1 Month U.S. LIBOR
3 Month U.S. LIBOR
6 Month U.S. LIBOR
1 Year U.S. LIBOR
You can read more about the new legislation here. Or, you can also read the actual text of the law beginning on page 1954 here. To find out how LinkSquares can help you become LIBOR compliant, request a demo today.