Following up on our past LIBOR posts, this update on the transition away from LIBOR (London Interbank Offering Rate), and other interbank offering rates (“IBOR”) denominated in other currencies, we discuss in this post the Alternative Reference Rates Committee (“ARRC”) and its role in potential New York State legislation with respect to the LIBOR transition.
As we mentioned in a previous post, “The LIBOR Transition – ARRC’s LIBOR Fallback Language for Residential Mortgages”, the ARRC is a group of private sector market participants organized by the Board of Governors of the Federal Reserve System (“FRB”) and the New York Federal Reserve Bank (“FRBNY”) to help facilitate a successful transition from LIBOR to its recommended alternative, the Secured Overnight Financing Rate (“SOFR”).
The ARRC now has begun exploring a potential legislative solution to address deficient contract fallback language for existing loans. At a ARRC meeting on November 15, 2019, the ARRC legal group presented the case for legislation by highlighting the serious economic and financial impacts on the market that would occur without a legislative solution in place before the LIBOR transition. The ARRC legal group focused on possible New York State legislation (New York law often is chosen for financial agreements that use LIBOR as a standard reference rate) that would provide fallback language to address the cessation of use of LIBOR.
The legal group proposed a legislative approach that would deal with various situations as follows:
- Contracts where LIBOR cessation is not addressed: the legislation’s application to the contract would be mandatory
- Contracts with fallback that depend on LIBOR: the legislation’s application to the contract would be mandatory
- Contracts with discretion: the legislation’s application to the contract would be permissive
After the meeting and presentation, it was decided that ARRC would begin discussions with relevant New York State authorities and engage more publicly in the issue.
“The LIBOR Transition” is a periodic series of updates discussing reference interbank offering rates, such as LIBOR, and the challenges involved in navigating a successful transition from their use as reference rates of choice in the market. In addition to the post mentioned above, some of our recent previous posts, “The LIBOR Transition – ARRC’s LIBOR Fallback Language for Residential Mortgages” and “The LIBOR Transition – ISDA Consultation Market Responses”.
Norton Rose Fulbright has assembled a group of its lawyers 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 on our Norton Rose Fulbright web site.