In a 415-9 vote the U.S. House of Representatives passed the Adjustable Interest Rate (LIBOR) Act of 2021. The LIBOR Act will now move to the Senate for consideration.
As previously covered, the LIBOR Act establishes a process for replacing LIBOR with the Secured Overnight Financing Rate in financial contracts that do not contain clear fallback provisions upon the cessation of US dollar LIBOR. The last publication of the most common tenors of US dollar LIBOR is scheduled to occur on June 30, 2023. The LIBOR Act would also (i) direct the Federal Reserve Board to issue rulemakings necessary to adjust SOFR and propose conforming contract changes for each category of LIBOR contract, (ii) preclude litigation related to existing contracts that use the recommended replacement rates and (iii) modify the Trust Indenture Act to accommodate the changes authorized by the LIBOR Act.
The legislation is designed to provide market participants with "(1) certainty of outcomes; (2) fairness and equality of outcomes; (3) avoidance of years of paralyzing litigation; and (4) preservation of liquidity and market resilience."
The Structured Finance Association and SIFMA applauded the passage of the LIBOR Act as a critical step for addressing "tough legacy" contracts and expressed optimism that the Senate will pass similar legislation.
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