On 19 July 2022, the Federal Reserve Board (the “Board”) published a notice of proposed rulemaking – Regulation Implementing the Adjustable Interest Rate (LIBOR) Act, as it was required to do by Section 110[1] of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”),[2] which was signed into law on 15 March 2022.[3]

In its related press release, the Board notes, “Consistent with the [LIBOR Act], the proposal would replace references to LIBOR in certain contracts with the applicable Board-selected replacement rate after June 30, 2023. The contracts include those governed by [US] law that do not mature before LIBOR ends and that lack adequate fallback provisions. The proposal identifies separate Board-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, and all other affected contracts. As required by the [LIBOR Act], each proposed replacement rate is based on the Secured Overnight Financing Rate.”

Market participants have been warned not to kid themselves. The last remaining settings of the London InterBank Offered Rate—those relating to select US Dollar tenors—are scheduled to become unavailable following publication on 30 June 2023. After this final USD LIBOR publication, the sunsetting of “the world’s most important number” will be complete.

With the inclusion of the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) as Division U of H.R. 2471, Consolidated Appropriations Act, 2022 (the “Appropriations Act”) passed by the U.S. House of Representatives on 9 March 2022 and the Senate on 10 March 2022, the United States is on the cusp of a federal solution for legacy LIBOR-linked contracts that contain inadequate fallback provisions, or none at all. Indeed, the final version of the legislation provides additional legal certainty with respect to the use of non-SOFR benchmarks not included in the earlier version of the legislation passed by the U.S. House of Representatives.

Continue Reading Consolidated Appropriations Act Advances Federal LIBOR Transition Solution

On 30 December 2021, the U.S. Internal Revenue Service (IRS) published final regulations for IBOR transition. Our 7 January 2022 Legal Update provides background on the principle U.S. federal income tax concern with IBOR-related amendments to existing contracts, an overview of previous IRS guidance aimed at addressing the concern, the types of modifications that can fit within the final regulations, the relief provided for modifications that do fit, and a few questions left open by the IRS.

Read the full Legal Update (PDF)

Further to our post yesterday, on 8 December 2021, after a brief debate, the Adjustable Interest Rate (LIBOR) Act of 2021 was passed by the U.S. House of Representatives by a 415-9 vote. The bill, which was introduced in the House on 22 July 2021, now moves to the Senate for consideration. The bill’s sponsor, Rep. Brad Sherman, praised the strong bipartisan work to “solve a crisis before it hits. The U.S. Senate is expected to take up the bill soon, where it is expected to enjoy bipartisan support. The U.S. Alternative Reference Rates Committee applauded the passage as “vital to the success of the transition away from LIBOR.”

On 7 December 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a Final Rule to facilitate LIBOR transition, via amendments to Regulation Z. The amendments take effect on 1 April 2022, and compliance becomes mandatory on 1 October 2022.

Continue Reading CFPB Issues Final Rule Addressing LIBOR Transition