As we discussed in an article a couple of months ago, LIBOR (the London Inter-Bank Offered Rate), an interest rate benchmark that is used as a reference rate for a wide range of financial transactions, will cease to be published in the near future. A major concern in the capital market and securitization industries has been addressing the  difficult problem of how to fairly compensate investors in when a contracted LIBOR rate ceases to be available and no agreement on a new rate has been implemented.

In order to address this issue, on March 24, the New York State Assembly and Senate passed Assembly Bill 164, which adds a new Section 18-C to the General Obligations Law dealing with LIBOR replacement. The bill is awaiting transmission to the governor for his signature.  The full text of this Bill is available at Capitalized terms in the summary below are used as defined in the Bill.

Pursuant to the new legislation, on  the  LIBOR  Replacement Date, the Recommended Benchmark Replacement (essentially a replacement based on the secured  overnight financing rate published by the Federal Reserve Bank of New York) will, by operation of law, be the Benchmark Replacement for any contract that uses LIBOR as a Benchmark and either contains no Fallback Provisions or contains Fallback Provisions that result in  a  Benchmark  Replacement, other  than a Recommended Benchmark Replacement, that is based in any way on any LIBOR value. In addition, following the occurrence of a LIBOR Discontinuance Event, any Fall Back Provisions in a contract that provide  for a  Benchmark  Replacement based on or otherwise involving a poll, survey or inquiries for quotes  or  information  concerning  interbank  lending rates  or  any  interest  rate  or dividend rate based on LIBOR will be  disregarded as if not included in such contract and will be deemed null and void and without any force or effect.

Determining Persons under a contract are granted the authority,  but are not  required, to select on or after the occurrence of a LIBOR Discontinuance Event the Recommended Benchmark Replacement as the Benchmark Replacement. Such selection of the Recommended  Benchmark  Replacement will be: (i) irrevocable; (ii)  made by the earlier of either the LIBOR Replacement Date, or the latest date for selecting a  Benchmark  Replacement  according  to  such contract; and (iii)  used  in  any  determinations  of  the  Benchmark under or with  respect to such contract occurring on and  after the LIBOR Replacement Date.

The legislation includes a number of safe harbor provisions. First, it provides that the selection  or  use  of  a  Recommended Benchmark Replacement as a Benchmark Replacement  under or in respect of a contract by  operation  of the statute constitutes (i) a  commercially  reasonable  replacement  for  and  a commercially substantial equivalent to LIBOR; (ii) a reasonable, comparable or analogous term for LIBOR  under  or  in  respect of such contract; (iii) a replacement that is based on a methodology or information that is similar or comparable to LIBOR; and (iv) substantial  performance  by any person of any right or obligation relating to or based on LIBOR under or in respect of a contract.

Second, none of (i) a LIBOR Discontinuance Event  or  a  LIBOR  Replacement Date,  (ii) the selection or use of a Recommended Benchmark Replacement as a Benchmark Replacement; or (iii) the  determination,  implementation  or  performance  of  Benchmark Replacement Conforming Changes, in each case,  by operation of the statute, will: (a) be deemed to impair or affect the right of any person to receive a payment, or affect the amount or  timing  of  such  payment,  under  any contract; or (b)  have the effect of (x) discharging or excusing performance under any contract for any reason, claim  or  defense, including,  but  not limited to, any force majeure or other provision in any contract; (b) giving any person the right to unilaterally terminate or suspend performance under any contract; (c) constituting a breach of a contract;  or  (d)  voiding  or  nullifying  any contract.

In addition, no person will have any liability for damages to any person or  be subject  to  any claim or request for equitable relief arising out of or related to the selection or use of a Recommended  Benchmark  Replacement or   the  determination,  implementation  or  performance  of  Benchmark Replacement Conforming Changes, in each case, by  operation  of  the statute,  and such selection or use of the Recommended Benchmark Replacement or such determination implementation  or  performance  of Benchmark Replacement Conforming Changes shall not give rise to any claim or cause of action by any person in law or in equity.

Finally, the selection or use of a Recommended Benchmark Replacement or  the  determination,  implementation,  or performance of Benchmark Replacement Conforming Changes, by operation of  the statute, shall be not deemed to (i) be an amendment or modification of any contract, or (ii) prejudice, impair or affect any person’s rights,  interests  or obligations under or in respect of any contract.

This legislation is intended to target securitizations, mortgages and other long-term, legacy floating-rate products which were issued before the announcement of LIBOIR’s cessation where the relevant documents include no workable fallback language. The Fed-backed Alternative Reference Rates Committee working group and The Securities Industry and Financial Markets Association, an ARRC member, issued statements of support for the legislation Thursday.

David Paseltiner is chair of the firm’s corporate and commercial transactions practice group and a member of its banking and financial services practice group. He represents businesses in a wide variety of industries, ranging in size from small start-ups to well established firms with national and international operations. He also represents individuals in connection with employment agreements, shareholders agreements and operating agreements. David can be reached at 516-393-8223 or