June 29, 2022

Volume XII, Number 180

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June 28, 2022

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June 27, 2022

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Federal Enactment of Adjustable Interest Rate (LIBOR) Act

On March 15, 2022, President Biden signed the Consolidated Appropriations Act of 2022 into law, which includes the Adjustable Interest Rate (LIBOR) Act. This legislation establishes a uniform benchmark replacement process for financial contracts that mature after the cessation of the London Interbank Offered Rate (LIBOR) (scheduled for June 30, 2023) which do not contain clearly defined or practicable fallback provisions. The legislation also establishes a safe harbor for lenders, shielding them from litigation for choosing a replacement rate recommended by the Board of Governors of the Federal Reserve, such as the Secured Overnight Financing Rate (SOFR). Importantly, parties may continue to use any appropriate benchmark rate in new contracts. 

The passage of the Adjustable Interest Rate (LIBOR) Act is significant for the financial services industry and worldwide markets in general, as LIBOR underpins over $200 trillion worth of contracts around the world. The transition from LIBOR to alternate benchmark rates has been ongoing for several years and has picked up steam in recent months, as the sunset date of LIBOR is just over a year away. However, there is a significant subset of contracts that do not have adequate benchmark fallback or transition provisions, the amendment of which may not be feasible. The new federal law aims to address this problem.

The Alternative Reference Rates Committee (ARRC) welcomed the news of the Act’s passage, stating that “President Biden and lawmakers have taken a vital step to protect investors, businesses, and consumers from LIBOR-related risks. By providing a solution for legacy contracts that have no workable fallbacks and a safe harbor for lenders who choose SOFR in relevant contracts, this legislation significantly reduces risks for market participants worldwide.” The federal law is similar to legislation passed in New York and several other states in 2021, which was initially proposed by the ARRC.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume XII, Number 75
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About this Author

Erik J. Chamberlin Corporate and Finance Attorney Womble Bond Dickinson Charlotte, NC
Associate

*Erik is not licensed to practice law in North Carolina.  His activities are supervised by a lawyer licensed to practice in North Carolina. 

Erik Chamberlin is an attorney in our capital markets group with several years of experience working on corporate and finance-related matters.  Erik has a wide range of experience representing lenders, borrowers, issuers, and underwriters in a variety of financing structures. He represents clients through all stages of a transaction, including drafting and negotiating transaction documents and guiding them through the closing process...

704.331.4942
Partner

Scott, an experienced transactions lawyer, is a recognized leader in commercial real estate and corporate/real estate finance. Scott has a wide ranging practice that gives him a unique perspective when crafting legal strategies for his clients.

Scott has a wealth of experience in real estate, but primarily focuses his real estate practice on the acquisition, development and sale of commercial and industrial properties and the negotiation of retail, office and industrial leases for properties located all across the United States. Scott also assists his clients with the management of...

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B. Taber Cathcart PARTNER Financial Institutions
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Taber Cathcart is co-leader of the Firm’s Financial Services Sector Team and a Partner in the Firm’s Capital Markets Group. She focuses her practice on diversified financial transactions, primarily concentrating on senior and subordinated debt transactions, including acquisition finance, real estate and working capital credit facilities.

Taber has a broad range of experience representing financial institutions, investment firms and institutional investors in a variety of roles, including as agent banks, arrangers, underwriters and lead senior and or mezzanine debt providers, whether...

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