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General Assembly Raised Bill No. 5394
February Session, 2022
LCO No. 2940
Referred to Committee on JUDICIARY
Introduced by:
(JUD)
AN ACT CONCERNING THE DISCONTINUANCE AND REPLACEMENT
OF THE LONDON INTERBANK OFFERED RATE.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:
Section 1. (NEW) (Effective July 1, 2022) As used in this section and 1
sections 2 and 3 of this act: 2
(1) "London Interbank Offered Rate" or "LIBOR" means as applied to 3
any particular contract, security or instrument, the United States dollar 4
LIBOR as administered by the ICE Benchmark Administration, or any 5
predecessor or successor thereof, or any tenor thereof, as applicable, that 6
is used in making any calculation or determination thereunder. 7
(2) "LIBOR replacement date" means: 8
(A) In the case of one-week and two-month tenors of LIBOR, the 9
effective date of this section; and 10
(B) In the case of all other tenors of LIBOR, the first London banking 11
day after June 30, 2023, unless the relevant recommending body 12
determines that any of such other LIBOR tenors will cease to be 13 Raised Bill No. 5394
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published or cease to be representative on a different date. A date that 14
affects one or more tenors of LIBOR shall not constitute a LIBOR 15
replacement date with respect to any contract, security or instrument 16
that (i) provides for only one tenor of LIBOR, if such contract, security 17
or instrument requires interpolation and such tenor can be interpolated 18
from LIBOR tenors that are not so affected, or (ii) permits a party to 19
choose from more than one tenor of LIBOR and any of such tenors are 20
not so affected or, if such contract, security or instrument requires 21
interpolation, can be interpolated from LIBOR tenors that are not so 22
affected. 23
(3) "Fallback provisions" means terms in a contract, security or 24
instrument that set forth a methodology or procedure for determining a 25
benchmark replacement, including any terms relating to the date on 26
which the benchmark replacement becomes effective, without regard to 27
whether a benchmark replacement can be determined in accordance 28
with such methodology or procedure. 29
(4) "Benchmark" means an index of interest rates or dividend rates 30
that is used, in whole or in part, as the basis of or as a reference for 31
calculating or determining any valuation, payment or other 32
measurement under or in respect of a contract, security or instrument. 33
(5) "Benchmark replacement" means a benchmark, or an interest rate 34
or dividend rate, which may or may not be based in whole or in part on 35
a prior setting of LIBOR, to replace LIBOR or any interest rate or 36
dividend rate based on LIBOR, whether on a temporary, permanent or 37
indefinite basis, under or in respect of a contract, security or instrument. 38
(6) "Recommended benchmark replacement" means, with respect to 39
any particular type of contract, security or instrument, a benchmark 40
replacement based on the secured overnight financing rate, including 41
any recommended spread adjustment and any benchmark replacement 42
conforming changes, that have been selected or recommended by a 43
relevant recommending body with respect to such type of contract, 44
security or instrument. 45 Raised Bill No. 5394
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(7) "Recommended spread adjustment" means a spread adjustment, 46
or method for calculating or determining such spread adjustment, 47
which may be a positive or negative value or zero, that has been selected 48
or recommended by a relevant recommending body for a recommended 49
benchmark replacement for a particular type of contract, security or 50
instrument and for a particular term to account for the effects of the 51
transition or change from LIBOR to a recommended benchmark 52
replacement. 53
(8) "Benchmark replacement conforming changes" means, with 54
respect to any type of contract, security or instrument, any technical, 55
administrative or operational changes, alterations or modifications that 56
are associated with and reasonably necessary to the use, adoption, 57
calculation or implementation of a recommended benchmark 58
replacement and that: 59
(A) Have been selected or recommended by a relevant 60
recommending body; and 61
(B) If, in the reasonable judgment of the calculating person, the 62
benchmark replacement conforming changes selected or recommended 63
pursuant to subparagraph (A) of this subdivision do not apply to such 64
contract, security or instrument or are insufficient to permit 65
administration and calculation of the recommended benchmark 66
replacement, then benchmark replacement conforming changes shall 67
include such other changes, alterations or modifications that, in the 68
reasonable judgment of the calculating person: (i) Are necessary to 69
permit administration and calculation of the recommended benchmark 70
replacement under or in respect of such contract, security or instrument 71
in a manner consistent with market practice for substantially similar 72
contracts, securities or instruments and, to the extent practicable, the 73
manner in which such contract, security or instrument was 74
administered immediately prior to the LIBOR replacement date; and (ii) 75
would not result in a disposition of such contract, security or instrument 76
for federal income tax purposes. 77 Raised Bill No. 5394
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(9) "Determining person" means, with respect to any contract, 78
security or instrument, in the following order of priority: 79
(A) Any person specified as a "determining person"; or 80
(B) Any person with the authority, right or obligation to: (i) 81
Determine the benchmark replacement that takes effect on the LIBOR 82
replacement date, (ii) calculate or determine a valuation, payment or 83
other measurement based on a benchmark, or (iii) notify other persons 84
of the occurrence of a LIBOR replacement date or a benchmark 85
replacement. 86
(10) "Relevant recommending body" means the Federal Reserve 87
Board, the Federal Reserve Bank of New York, or the Alternative 88
Reference Rates Committee, or any successor to said board, bank or 89
committee. 90
(11) "Secured Overnight Financing Rate" means, with respect to any 91
day, the secured overnight financing rate published for such day by the 92
Federal Reserve Bank of New York, as the administrator of the 93
benchmark, or a successor administrator, on the Internet web site of the 94
Federal Reserve Bank of New York. 95
(12) "Calculating person" means, with respect to any contract, 96
security or instrument, any person, including the determining person, 97
responsible for calculating or determining any valuation, payment or 98
other measurement based on a benchmark. 99
(13) "Contract, security, or instrument" includes, without limitation, 100
any contract; agreement; mortgage; deed of trust; lease; security, 101
whether representing debt or equity, and including any interest in a 102
corporation, a partnership or a limited liability company; instrument or 103
other obligation. 104
Sec. 2. (NEW) (Effective July 1, 2022) (a) On the LIBOR replacement 105
date, the recommended benchmark replacement shall, by operation of 106
law, be the benchmark replacement for any contract, security or 107 Raised Bill No. 5394
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instrument that uses LIBOR as a benchmark and: 108
(1) Contains no fallback provisions; or 109
(2) Contains fallback provisions that result in a benchmark 110
replacement, other than a recommended benchmark replacement, that 111
is based in any way on any LIBOR value. 112
(b) Following the effective date of this section, any fallback provisions 113
in a contract, security, or instrument that provide for a benchmark 114
replacement based on or otherwise involving a poll, survey or inquiries 115
for quotes or information concerning interbank lending rates or any 116
interest rate or dividend rate based on LIBOR shall be disregarded as if 117
not included in such contract, security or instrument and shall be 118
deemed null and void and without any force or effect. 119
(c) A determining person shall have the authority under the 120
provisions of this section and sections 1 and 3 of this act, but shall not 121
be required, to select the recommended benchmark replacement as the 122
benchmark replacement. Such selection of the recommended 123
benchmark replacement shall be: (1) Irrevocable; (2) made by the earlier 124
of either the LIBOR replacement date, or the latest date for selecting a 125
benchmark replacement according to such contract, security, or 126
instrument; and (3) used in any determinations of the benchmark under 127
or with respect to such contract, security or instrument occurring on and 128
after the LIBOR replacement date. The provisions of this subsection 129
shall apply to any contract, security, or instrument that uses LIBOR as a 130
benchmark and contains fallback provisions that permit or require the 131
selection of a benchmark replacement that is: (A) Based in any way on 132
any LIBOR value; or (B) the substantive equivalent of subdivision (1), 133
(2) or (3) of subsection (a) of section 3 of this act. 134
(d) If a recommended benchmark replacement becomes the 135
benchmark replacement for any contract, security, or instrument 136
pursuant to subsection (a) or (c) of this section, then all benchmark 137
replacement conforming changes that are applicable to such 138
recommended benchmark replacement shall become an integral part of 139 Raised Bill No. 5394
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such contract, security, or instrument by operation of law. 140
(e) The provisions of this section and sections 1 and 3 of this act shall 141
not alter or impair: 142
(1) Any written agreement by all requisite parties that, 143
retrospectively or prospectively, a contract, security, or instrument shall 144
not be subject to this act without necessarily referring specifically to this 145
act. For purposes of this subdivision, "requisite parties" means all parties 146
required to amend the terms and provisions of a contract, security, or 147
instrument that would otherwise be altered or affected by the provisions 148
of this section and sections 1 and 3 of this act; 149
(2) Any contract, security or instrument that contains fallback 150
provisions that would result in a benchmark replacement that is not 151
based on LIBOR, including, but not limited to, the prime rate or the 152
federal funds rate, except that such contract, security or instrument shall 153
be subject to the provisions of subsection (b) of this section; 154
(3) Any contract, security, or instrument subject to the provisions of 155
subsection (c) of this section as to which a determining person (A) does 156
not elect to use a recommended benchmark replacement pursuant to 157
subsection (c) of this section, or (B) elects to use a recommended 158
benchmark replacement prior to the effective date of this section, except 159
that such contract, security, or instrument shall be subject to the 160
provisions of subsection (b) of this section; or 161
(4) The application to a recommended benchmark replacement of any 162
cap, floor, modifier, or spread adjustment to which LIBOR had been 163
subject pursuant to the terms of a contract, security, or instrument. 164
(f) Notwithstanding any provision of the Uniform Commercial Code 165
or any other law of this state, the provisions of this section and sections 166
1 and 3 of this act shall apply to all contracts, securities and instruments, 167
including contracts, with respect to commercial transactions, and such 168
provisions shall not be deemed to be displaced by any other law of this 169
state. 170 Raised Bill No. 5394
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Sec. 3. (NEW) (Effective July 1, 2022) (a) The selection or use of a 171
recommended benchmark replacement as a benchmark replacement 172
under or in respect of a contract, security or instrument by operation of 173
section 2 of this act shall constitute: 174
(1) A commercially reasonable replacement for and a commercially 175
substantial equivalent to LIBOR; 176
(2) A reasonable, comparable or analogous term for LIBOR under or 177
in respect of such contract, security or instrument; 178
(3) A replacement that is based on a methodology or information that 179
is similar or comparable to LIBOR; and 180
(4) Substantial performance by any person of any right or obligation 181
relating to or based on LIBOR under or in respect of a contract, security 182
or instrument. 183
(b) No: (1) LIBOR replacement date, or any event or condition giving 184
rise thereto, (2) selection or use of a recommended benchmark 185
replacement as a benchmark replacement; or (3) determination, 186
implementation or performance of benchmark replacement conforming 187
changes, in each case, by operation of section 2 of this act, shall: (A) Be 188
deemed to impair or affect the right of any person to receive a payment, 189
or affect the amount or timing of such payment, under any contract, 190
security, or instrument; or (B) have the effect of (i) discharging or 191
excusing performance under any contract, security or instrument for 192
any reason, claim or defense, including, but not limited to, any force 193
majeure or other provision in any contract, security or instrument; (ii) 194
giving any person the right to unilaterally terminate or suspend 195
performance under any contract, security or instrument; (iii) 196
constituting a breach of a contract, security or instrument; or (iv) 197
voiding or nullifying any contract, security or instrument. 198
(c) No person shall have any liability for damages to any person or be 199
subject to any claim or request for equitable relief arising out of or 200
related to the selection or use of a recommended benchmark 201 Raised Bill No. 5394
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replacement or the determination, implementation or performance of 202
benchmark replacement conforming changes, in each case, by operation 203
of section 2 of this act, and such selection or use of the recommended 204
benchmark replacement or such determination implementation or 205
performance of benchmark replacement conforming changes shall not 206
give rise to any claim or cause of action by any person in law or in 207
equity. 208
(d) The selection or use of a recommended benchmark replacement 209
or the determination, implementation, or performance of benchmark 210
replacement conforming changes, by operation of section 2 of this act, 211
shall not be deemed to: 212
(1) Be an amendment or modification of any contract, security or 213
instrument; and 214
(2) Prejudice, impair or affect any person's rights, interests or 215
obligations under or in respect of any contract, security or instrument. 216
(e) Except as provided in subsection (a) or (c) of section 2 of this act, 217
the provisions of this section and section 1 of this act shall not be 218
interpreted as creating any negative inference or negative presumption 219
regarding the validity or enforceability of: 220
(1) Any benchmark replacement that is not a recommended 221
replacement benchmark; 222
(2) Any spread adjustment, or method for calculating or determining 223
a spread adjustment, that is not a recommended spread adjustment; or 224
(3) Any changes, alterations or modifications to or in respect of a 225
contract, security or instrument that are not benchmark replacement 226
conforming changes. 227
Sec. 4. (NEW) (Effective July 1, 2022) If any provision of section 1 to 3, 228
inclusive, of this act or application thereof to any person or circumstance 229
is held invalid, the invalidity shall not affect other provisions or 230
applications of sections 1 to 3, inclusive, of this act that can be given 231 Raised Bill No. 5394
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effect without the invalid provision or application, and to this end the 232
provisions of sections 1 to 3, inclusive, of this act shall be severable. 233
This act shall take effect as follows and shall amend the following
sections:
Section 1 July 1, 2022 New section
Sec. 2 July 1, 2022 New section
Sec. 3 July 1, 2022 New section
Sec. 4 July 1, 2022 New section
Statement of Purpose:
To establish a clear process for replacing the London Interbank Offered
Rate in existing contracts.
[Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except
that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not
underlined.]