On April 6, 2021, New York Governor Mario Cuomo signed into law legislation tackling the uncertainties surrounding the LIBOR transition, particularly for legacy contracts.
The new law amends the New York State General Obligations Law by adding a new Article 18-C, and is limited to contracts governed by New York law that are either silent on a replacement rate for LIBOR or do not include fallback language other than LIBOR. For those New York-based contracts that do not have a replacement rate or fallback language, the new law sets forth that the LIBOR transition cannot be used as a breach of contract and provides that the recommended benchmark replacement is a commercially reasonable substitute for LIBOR. These statutory provisions are mandatory for contracts that are silent on a replacement rate for LIBOR, but only permissive for other types of legacy NY contracts.
The new law’s provisions are triggered by the occurrence of statutory event, such as, a “LIBOR Discontinuance Event” or “LIBOR Replacement Date” as defined in the statute. Upon the statutory trigger event, the “Recommended Benchmark Replacement” (as decided by the “Relevant Recommending Body” defined as the FRBNY, FRB or ARRC, or any successor to them) shall by operation of law be the “Benchmark Replacement” for such contract.
There has been no legislation yet introduced on this issue in the current session of the US Congress but there is draft LIBOR legislation by Representative Brad Sherman (D-CA) being circulated for informal comment before its formal introduction in Congress. Representative Sherman’s bill would give the Federal Reserve Board the authority to set a replacement benchmark rate for LIBOR in contracts that do not otherwise specify a replacement reference rate for LIBOR or specify .a replacement rate based on LIBOR. As currently drafted, the legislation would pre-empt New York’s new LIBOR transition law and any other similar state laws that might be adopted.
Norton Rose Fulbright also has assembled a group of its attorneys from around the globe to stay on top of these issues and assist clients in the transition to new reference rates. More information can be found here.