LIBOR bill approved by the New York state legislature – Finance and Banking

LIBOR bill approved by the New York state legislature – Finance and Banking

The text of the legislation was presented by the ARRC in 2020,
more details of which can be found in our earlier blog post. The ARRC have endorsed
Governor Cuomo’s decision to sign the legislation into law,
labelling it a “critical step in facilitating a smooth
transition away from LIBOR”. It remains to be seen whether
federal legislation will be adopted alongside this New York State
legislation, though the introduction of a draft discussion bill to
the U.S. Congress in October 2020 suggests that such legislation
could progress over the course of 2021. The law has been welcomed by market participants, as it reduces
uncertainty and economic impacts surrounding the transition by
providing a means of transitioning ‘tough legacy’ New York
law contracts that do not include effective fallbacks. Originally published April 15, 2021

On March 24, 2021, the New York State legislature passed a
Senate Bill (the Bill) regarding the
discontinuation of USD LIBOR, which will cease in mid-2023. New
York State Governor Andrew Cuomo signed the Bill into law on April
6, 2021.
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The new law applies with respect contracts governed by New York
law for which U.S. dollar LIBOR (USD LIBOR) is
used as an interest rate benchmark. Similar to the version of the
legislation that the ARRC originally proposed in March 2020, the
final law, among other provisions, (i) prohibits a contract party
from refusing to perform its contractual obligations or declaring a
breach of contract as a result of LIBOR discontinuance or the use
of the legislation’s recommended benchmark replacement, (ii)
establishes that the use of the ARRC-recommended benchmark
replacement (which will be based on the Secured Overnight Financing
Rate (or SOFR) is a commercially reasonable substitute for and a
commercially substantial equivalent to LIBOR, and (iii) provides a
safe harbor from litigation for the use of such ARRC-recommended
benchmark replacement. The proposed legislation
would not override existing contract language that
specifies a non-LIBOR based rate as a fallback to LIBOR (e.g., the
prime rate). For this reason, market participants have observed
that the law may not have a significant impact on New York
law-governed bilateral and syndicated business loans, which
generally provide that if USD LIBOR is not available an alternate
base rate (such as the prime rate or fed funds) will be used under
such contract. In addition, because the law applies only to New
York law-governed contracts referencing USD LIBOR, it will not
affect contracts governed by the law of other states or countries
or contracts referencing LIBOR for other currencies.
McGuireWoods LLP

Source www.mondaq.com

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