(Dec. 10, 2021) Minimizing the risk of disruptive litigation and adverse economic impacts associated with the transition away from the LIBOR reference rate is the aim of legislation passed by the House Wednesday.
The Adjustable Interest Rate (LIBOR) Act of 2021 (H.R. 4616), passed on voice vote, was sponsored by Rep. Brad Sherman (D-Calif.). In addition to minimizing litigation and economic risks, supporters say the bill will encourage a fair transition for financial contracts that do not consider the permanent cessation of LIBOR by June 2023 in existing contracts, and have no workable fallbacks. LIBOR as a reference rate may no longer be used for new loans or other financial contracts after Dec. 31.
The bill states its intent is to establish a clear and uniform basis nationwide for replacing LIBOR in existing contracts whose terms do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts.
The legislation, similar to a statute enacted earlier this year in New York, now heads to the Senate for consideration.