Enacts provisions relating to the discontinuance of LIBOR (the London interbank offered rate); prohibits parties from refusing to perform contractual obligations or declaring a breach of contract as a result of the discontinuance of LIBOR or the use of a replacement; establishes that the replacement is a commercially reasonable substitute for and a commercially substantial equivalent to LIBOR; provides a safe harbor from litigation for the use of the recommended benchmark replacement.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A164B
TITLE OF BILL:
An act to amend the general obligations law, in relation to the discon-
tinuance of the London interbank offered rate
PURPOSE OR GENERAL IDEA OF BILL:
The purpose of this bill is to minimize costly and disruptive litigation
by providing legal certainty for the issues arising in New York
contracts resulting from the permanent discontinuance of LIBOR.
SUMMARY OF SPECIFIC PROVISIONS:
Section 1 amends the general obligations law to add a new article 18-C
relating to London Interbank Offered Rate ("LIBOR") discontinuance.
Section 18-400 contains definitions.
Section 18-401 provides that the recommended benchmark replacement is
mandatory, upon LIBOR's discontinuance, for any contract, security or
instrument that uses LIBOR and is silent as to fallback language or
falls back to a LIBOR based rate.
After LIBOR discontinuance, any contract, security or instrument with
language that falls back to a LIBOR based rate or includes a fallback to
polling for LIBOR or other interbank funding rate is void. The recom-
mended benchmark replacement is optional, upon LIBOR's discontinuance,
for any contract, security or instrument that gives a determining person
the right to exercise discretion or judgment regarding fallback
language. Nothing in this section overrides language in a contract,
security or instrument that falls back to an express non-LIBOR based
Section 18-402 establishes that the recommended benchmark replacement is
a commercially reasonable substitute for and a commercially substantial
equivalent to LIBOR. Using the recommended benchmark replacement does
not discharge or excuse performance. Using the recommended benchmark
replacement provides a safe harbor from litigation. Using the recom-
mended benchmark replacement does not amend or modify the contract,
security or instrument or impair or have a material or adverse effect on
any person's rights or obligations.
Section 18-403 contains a severability clause. Section 2 is the effec-
The London Interbank Offered Rate (LIBOR) is the most referenced short
term interest rate in the world. It's estimated $200 trillion of finan-
cial contracts and securities are tied to USD LIBOR. LIBOR is based on
relatively few transactions and relies heavily on expert judgement in
determining the rate. The scarcity of underlying transactions makes
LIBOR potentially unsustainable and susceptible to manipulation. As a
result, the regulator that oversees LIBOR, the U.K.'s Financial Conduct
Authority, has announced that it will not compel the panel banks to
continue to contribute to publication of LIBOR after 2021. This leaves
financial markets in a situation where numerous products reference LIBOR
but LIBOR is likely to cease, requiring alternative solutions.
In the United States, the Federal Reserve convened the Alternative
Reference Rates Committee (ARRC) to develop recommendations to facili-
tate the transition away from U.S. dollar LIBOR. The ARRC is comprised
of a diverse set of private sector entities and official-sector ex-offi-
cio members including the Federal Reserve, the Treasury Department, the
Consumer Finance Protection Bureau, the Commodity Futures Trading
Commission and the Securities and Exchange Commission.
The ARRC recommended a rate to replace LIBOR called the Secured Over-
night Financing Rate (SOFR) which the Federal Reserve Bank of New York
began publishing in 2018. SOFR is a broad measure of the cost of borrow-
ing cash overnight collateralized by U.S. Treasury securities in repur-
chase agreement (repo) markets. The overnight repo mark consists of
approximately $1 trillion of transactions per day.
Through the ARRC's promotion of SOFR over 25 institutions began volun-
tarily transitioning to SOFR. However, existing contracts that reference
LIBOR pose a unique problem when they do not include adequate "fallback
language" provisions. Fallback language refers to legal provisions in a
contract that apply if the underlying reference rate in the product
(i.e. LIBOR) is discontinued or unavailable.
When LIBOR is discontinued, consumers, businesses, lenders, and inves-
tors in New York will be faced with legal uncertainty and adverse
economic impacts on hundreds of thousands of affected financial
contracts, including mortgages, student loans, credit cards, business
loans, business contracts, and securities. To mitigate the risk of
economic disruption, this bill would mandate the use of the recommended
benchmark replacement for contracts that are silent on fall back
language or fall back to a LIBOR based rate.
PRIOR LEGISLATIVE HISTORY:
A11098 of 2020.
This act shall take effect immediately.
STATE OF NEW YORK
2021-2022 Regular Sessions
January 6, 2021
Introduced by M. of A. ZEBROWSKI -- read once and referred to the
Committee on Judiciary -- committee discharged, bill amended, ordered
reprinted as amended and recommitted to said committee -- committee
discharged, bill amended, ordered reprinted as amended and recommitted
to said committee
AN ACT to amend the general obligations law, in relation to the discon-
tinuance of the London interbank offered rate
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The general obligations law is amended by adding a new
2 article 18-C to read as follows:
3 ARTICLE 18-C
4 LIBOR DISCONTINUANCE
5 Section 18-400. Definitions.
6 18-401. Effect of LIBOR discontinuance on agreements.
7 18-402. Continuity of contract and safe harbor.
8 18-403. Severability.
9 § 18-400. Definitions. As used in this article the following terms
10 shall have the following meanings:
11 1. "LIBOR" shall mean, for purposes of the application of this article
12 to any particular contract, security or instrument, U.S. dollar LIBOR
13 (formerly known as the London interbank offered rate) as administered by
14 ICE Benchmark Administration Limited (or any predecessor or successor
15 thereof), or any tenor thereof, as applicable, that is used in making
16 any calculation or determination thereunder.
17 2. "LIBOR discontinuance event" shall mean the earliest to occur of
18 any of the following:
19 a. a public statement or publication of information by or on behalf of
20 the administrator of LIBOR announcing that such administrator has ceased
21 or will cease to provide LIBOR, permanently or indefinitely, provided
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
 is old law to be omitted.
A. 164--B 2
1 that, at the time of the statement or publication, there is no successor
2 administrator that will continue to provide LIBOR;
3 b. a public statement or publication of information by the regulatory
4 supervisor for the administrator of LIBOR, the United States Federal
5 Reserve System, an insolvency official with jurisdiction over the admin-
6 istrator for LIBOR, a resolution authority with jurisdiction over the
7 administrator for LIBOR or a court or an entity with similar insolvency
8 or resolution authority over the administrator for LIBOR, which states
9 that the administrator of LIBOR has ceased or will cease to provide
10 LIBOR permanently or indefinitely, provided that, at the time of the
11 statement or publication, there is no successor administrator that will
12 continue to provide LIBOR; or
13 c. a public statement or publication of information by the regulatory
14 supervisor for the administrator of LIBOR announcing that LIBOR is no
15 longer representative. For purposes of this subdivision two, a public
16 statement or publication of information that affects one or more tenors
17 of LIBOR shall not constitute a LIBOR discontinuance event with respect
18 to any contract, security or instrument that (i) provides for only one
19 tenor of LIBOR, if such contract, security or instrument requires
20 interpolation and such tenor can be interpolated from LIBOR tenors that
21 are not so affected, or (ii) permits a party to choose from more than
22 one tenor of LIBOR and any of such tenors (A) is not so affected or (B)
23 if such contract, security or instrument requires interpolation, can be
24 interpolated from LIBOR tenors that are not so affected.
25 3. "LIBOR replacement date" shall mean:
26 a. in the case of a LIBOR discontinuance event described in paragraph
27 a or b of subdivision two of this section, the later of (i) the date of
28 the public statement or publication of information referenced therein;
29 and (ii) the date on which the administrator of LIBOR permanently or
30 indefinitely ceases to provide LIBOR; and
31 b. in the case of a LIBOR discontinuance event described in paragraph
32 c of subdivision two of this section, the date of the public statement
33 or publication of information referenced therein. For purposes of this
34 subdivision, a date that affects one or more tenors of LIBOR shall not
35 constitute a LIBOR replacement date with respect to any contract, secu-
36 rity or instrument that (i) provides for only one tenor of LIBOR, if
37 such contract, security or instrument requires interpolation and such
38 tenor can be interpolated from LIBOR tenors that are not so affected, or
39 (ii) permits a party to choose from more than one tenor of LIBOR and any
40 of such tenors (A) is not so affected or (B) if such contract, security
41 or instrument requires interpolation, can be interpolated from LIBOR
42 tenors that are not so affected.
43 4. "Fallback provisions" shall mean terms in a contract, security or
44 instrument that set forth a methodology or procedure for determining a
45 benchmark replacement, including any terms relating to the date on which
46 the benchmark replacement becomes effective, without regard to whether a
47 benchmark replacement can be determined in accordance with such method-
48 ology or procedure.
49 5. "Benchmark" shall mean an index of interest rates or dividend rates
50 that is used, in whole or in part, as the basis of or as a reference for
51 calculating or determining any valuation, payment or other measurement
52 under or in respect of a contract, security or instrument.
53 6. "Benchmark replacement" shall mean a benchmark, or an interest rate
54 or dividend rate (which may or may not be based in whole or in part on a
55 prior setting of LIBOR), to replace LIBOR or any interest rate or divi-
A. 164--B 3
1 dend rate based on LIBOR, whether on a temporary, permanent or indefi-
2 nite basis, under or in respect of a contract, security or instrument.
3 7. "Recommended benchmark replacement" shall mean, with respect to any
4 particular type of contract, security or instrument, a benchmark
5 replacement based on SOFR, which shall include any recommended spread
6 adjustment and any benchmark replacement conforming changes, that shall
7 have been selected or recommended by a relevant recommending body with
8 respect to such type of contract, security or instrument.
9 8. "Recommended spread adjustment" shall mean a spread adjustment, or
10 method for calculating or determining such spread adjustment, (which may
11 be a positive or negative value or zero) that shall have been selected
12 or recommended by a relevant recommending body for a recommended bench-
13 mark replacement for a particular type of contract, security or instru-
14 ment and for a particular term to account for the effects of the transi-
15 tion or change from LIBOR to a recommended benchmark replacement.
16 9. "Benchmark replacement conforming changes" shall mean, with respect
17 to any type of contract, security or instrument, any technical, adminis-
18 trative or operational changes, alterations or modifications that are
19 associated with and reasonably necessary to the use, adoption, calcu-
20 lation or implementation of a recommended benchmark replacement and
22 a. have been selected or recommended by a relevant recommending body;
24 b. if, in the reasonable judgment of the calculating person, the
25 benchmark replacement conforming changes selected or recommended pursu-
26 ant to paragraph a of this subdivision do not apply to such contract,
27 security or instrument or are insufficient to permit administration and
28 calculation of the recommended benchmark replacement, then benchmark
29 replacement conforming changes shall include such other changes, alter-
30 ations or modifications that, in the reasonable judgment of the calcu-
31 lating person:
32 (i) are necessary to permit administration and calculation of the
33 recommended benchmark replacement under or in respect of such contract,
34 security or instrument in a manner consistent with market practice for
35 substantially similar contracts, securities or instruments and, to the
36 extent practicable, the manner in which such contract, security or
37 instrument was administered immediately prior to the LIBOR replacement
38 date; and
39 (ii) would not result in a disposition of such contract, security or
40 instrument for U.S. federal income tax purposes.
41 10. "Determining person" shall mean, with respect to any contract,
42 security or instrument, in the following order of priority:
43 a. any person specified as a "determining person"; or
44 b. any person with the authority, right or obligation to:
45 (i) determine the benchmark replacement that will take effect on the
46 LIBOR replacement date,
47 (ii) calculate or determine a valuation, payment or other measurement
48 based on a benchmark, or
49 (iii) notify other persons of the occurrence of a LIBOR discontinuance
50 event, a LIBOR replacement date or a benchmark replacement.
51 11. "Relevant recommending body" shall mean the Federal Reserve Board,
52 the Federal Reserve Bank of New York, or the Alternative Reference Rates
53 Committee, or any successor to any of them.
54 12. "SOFR" shall mean, with respect to any day, the secured overnight
55 financing rate published for such day by the Federal Reserve Bank of New
A. 164--B 4
1 York, as the administrator of the benchmark (or a successor administra-
2 tor), on the Federal Reserve Bank of New York's website.
3 13. "Calculating person" shall mean, with respect to any contract,
4 security or instrument, any person (which may be the determining person)
5 responsible for calculating or determining any valuation, payment or
6 other measurement based on a benchmark.
7 14. "Contract, security, or instrument" shall include, without limita-
8 tion, any contract, agreement, mortgage, deed of trust, lease, security
9 (whether representing debt or equity, and including any interest in a
10 corporation, a partnership or a limited liability company), instrument,
11 or other obligation.
12 § 18-401. Effect of LIBOR discontinuance on agreements. 1. On the
13 LIBOR replacement date, the recommended benchmark replacement shall, by
14 operation of law, be the benchmark replacement for any contract, securi-
15 ty or instrument that uses LIBOR as a benchmark and:
16 a. contains no fallback provisions; or
17 b. contains fallback provisions that result in a benchmark replace-
18 ment, other than a recommended benchmark replacement, that is based in
19 any way on any LIBOR value.
20 2. Following the occurrence of a LIBOR discontinuance event, any fall-
21 back provisions in a contract, security, or instrument that provide for
22 a benchmark replacement based on or otherwise involving a poll, survey
23 or inquiries for quotes or information concerning interbank lending
24 rates or any interest rate or dividend rate based on LIBOR shall be
25 disregarded as if not included in such contract, security or instrument
26 and shall be deemed null and void and without any force or effect.
27 3. This subdivision shall apply to any contract, security, or instru-
28 ment that uses LIBOR as a benchmark and contains fallback provisions
29 that permit or require the selection of a benchmark replacement that is:
30 a. based in any way on any LIBOR value; or
31 b. the substantive equivalent of paragraph a, b or c of subdivision
32 one of section 18-402 of this article.
33 A determining person shall have the authority under this article, but
34 shall not be required, to select on or after the occurrence of a LIBOR
35 discontinuance event the recommended benchmark replacement as the bench-
36 mark replacement. Such selection of the recommended benchmark replace-
37 ment shall be:
38 (i) irrevocable;
39 (ii) made by the earlier of either the LIBOR replacement date, or the
40 latest date for selecting a benchmark replacement according to such
41 contract, security, or instrument; and
42 (iii) used in any determinations of the benchmark under or with
43 respect to such contract, security or instrument occurring on and after
44 the LIBOR replacement date.
45 4. If a recommended benchmark replacement becomes the benchmark
46 replacement for any contract, security, or instrument pursuant to subdi-
47 vision one or subdivision three of this section, then all benchmark
48 replacement conforming changes that are applicable (in accordance with
49 the definition of benchmark replacement conforming changes) to such
50 recommended benchmark replacement shall become an integral part of such
51 contract, security, or instrument by operation of law.
52 5. The provisions of this article shall not alter or impair:
53 a. any written agreement by all requisite parties that, retrospective-
54 ly or prospectively, a contract, security, or instrument shall not be
55 subject to this article without necessarily referring specifically to
56 this article. For purposes of this subdivision, "requisite parties"
A. 164--B 5
1 means all parties required to amend the terms and provisions of a
2 contract, security, or instrument that would otherwise be altered or
3 affected by this article;
4 b. any contract, security or instrument that contains fallback
5 provisions that would result in a benchmark replacement that is not
6 based on LIBOR, including, but not limited to, the prime rate or the
7 federal funds rate, except that such contract, security or instrument
8 shall be subject to subdivision two of this section;
9 c. any contract, security, or instrument subject to subdivision three
10 of this section as to which a determining person does not elect to use a
11 recommended benchmark replacement pursuant to subdivision three of this
12 section or as to which a determining person elects to use a recommended
13 benchmark replacement prior to the occurrence of a LIBOR discontinuance
14 event, except that such contract, security, or instrument shall be
15 subject to subdivision two of this section; or
16 d. the application to a recommended benchmark replacement of any cap,
17 floor, modifier, or spread adjustment to which LIBOR had been subject
18 pursuant to the terms of a contract, security, or instrument.
19 6. Notwithstanding the uniform commercial code or any other law of
20 this state, this title shall apply to all contracts, securities and
21 instruments, including contracts, with respect to commercial trans-
22 actions, and shall not be deemed to be displaced by any other law of
23 this state.
24 § 18-402. Continuity of contract and safe harbor. 1. The selection or
25 use of a recommended benchmark replacement as a benchmark replacement
26 under or in respect of a contract, security or instrument by operation
27 of section 18-401 of this article shall constitute:
28 a. a commercially reasonable replacement for and a commercially
29 substantial equivalent to LIBOR;
30 b. a reasonable, comparable or analogous term for LIBOR under or in
31 respect of such contract, security or instrument;
32 c. a replacement that is based on a methodology or information that is
33 similar or comparable to LIBOR; and
34 d. substantial performance by any person of any right or obligation
35 relating to or based on LIBOR under or in respect of a contract, securi-
36 ty or instrument.
37 2. None of: a. a LIBOR discontinuance event or a LIBOR replacement
38 date, b. the selection or use of a recommended benchmark replacement as
39 a benchmark replacement; or c. the determination, implementation or
40 performance of benchmark replacement conforming changes, in each case,
41 by operation of section 18-401 of this article, shall:
42 (i) be deemed to impair or affect the right of any person to receive a
43 payment, or affect the amount or timing of such payment, under any
44 contract, security, or instrument; or
45 (ii) have the effect of (A) discharging or excusing performance under
46 any contract, security or instrument for any reason, claim or defense,
47 including, but not limited to, any force majeure or other provision in
48 any contract, security or instrument; (B) giving any person the right to
49 unilaterally terminate or suspend performance under any contract, secu-
50 rity or instrument; (C) constituting a breach of a contract, security or
51 instrument; or (D) voiding or nullifying any contract, security or
53 3. No person shall have any liability for damages to any person or be
54 subject to any claim or request for equitable relief arising out of or
55 related to the selection or use of a recommended benchmark replacement
56 or the determination, implementation or performance of benchmark
A. 164--B 6
1 replacement conforming changes, in each case, by operation of section
2 18-401 of this article, and such selection or use of the recommended
3 benchmark replacement or such determination implementation or perform-
4 ance of benchmark replacement conforming changes shall not give rise to
5 any claim or cause of action by any person in law or in equity.
6 4. The selection or use of a recommended benchmark replacement or the
7 determination, implementation, or performance of benchmark replacement
8 conforming changes, by operation of section 18-401 of this article,
9 shall be deemed to:
10 a. not be an amendment or modification of any contract, security or
11 instrument; and
12 b. not prejudice, impair or affect any person's rights, interests or
13 obligations under or in respect of any contract, security or instrument.
14 5. Except as provided in either subdivision one or subdivision three
15 of section 18-401 of this article, the provisions of this article shall
16 not be interpreted as creating any negative inference or negative
17 presumption regarding the validity or enforceability of:
18 a. any benchmark replacement that is not a recommended replacement
20 b. any spread adjustment, or method for calculating or determining a
21 spread adjustment, that is not a recommended spread adjustment; or
22 c. any changes, alterations or modifications to or in respect of a
23 contract, security or instrument that are not benchmark replacement
24 conforming changes.
25 § 18-403. Severability. If any provision of this article or applica-
26 tion thereof to any person or circumstance is held invalid, the invalid-
27 ity shall not affect other provisions or applications of this article
28 that can be given effect without the invalid provision or application,
29 and to this end the provisions of this article shall be severable.
30 § 2. This act shall take effect immediately.