The version of the proposed federal Adjustable Interest Rate (LIBOR) Act of 2021 that was introduced in the House of Representative in 2020 mirrored, with a handful of notable exceptions, both the substance and the text of the analogous New York State legislation that became law on 6 April 2021 (the New York statute is included as a new article 18-C of the General Obligations Law). However, the text of the proposed federal statute that the House Committee on Financial Services ordered reported to full House on 28 July of this year differs markedly from the New York statute.
One difference will be relevant to LIBOR-priced loans in which the loan agreement has a fallback provision that gives the lender a right to determine the benchmark that will replace LIBOR. The New York statute covers a loan agreement that either has no fallback provision or has a fallback that would result in a replacement rate that is based on LIBOR. A loan agreement that gives the lender the right to select a replacement rate does not fall within in the ambit of the New York statute.
In contrast, Section 4(e) of the proposed federal legislation provides that:
“If a Determining Person [defined as “… any person with the authority, right or obligation … to determine a Benchmark Replacement] has authority to select the Board-Selected Benchmark Replacement [that is, the replacement rate recommended by the Federal Reserve Board], … but does not select a Benchmark Replacement by the LIBOR Replacement Date [which is, generally, 30 June 2023], then, on the LIBOR Replacement Date, the Board-Selected Benchmark Replacement shall, by operation of law, be the Benchmark Replacement for [the loan agreement].”
The proposed federal legislation also provides, in Section 4(f), that if a Determining Person does not select a rate for a particular loan agreement by the LIBOR Replacement Date and, therefore, the statute imposes a replacement rate, then the Benchmark Replacement Conforming Changes adopted by the Federal Reserve Board also will be incorporated into the loan agreement automatically.
The New York statute has the same concept of a “determining person,” but the failure of a determining person to select a replacement rate does not result in the automatic imposition of a new rate as a matter law.
Although not a feature of syndicated loan documentation, many bilateral loan agreements give the lender the right to select a replacement rate for LIBOR. Were the Adjustable Interest Rate (LIBOR) Act of 2021 to become law in its present form, and the lender in such an agreement did not select a replacement rate for LIBOR by the prescribed date, the interest rate on loans under those agreements would automatically convert from a LIBOR-based rate to a SOFR-based rate (as recommended by the Federal Reserve Board), with related recommended conforming changes, upon the cessation of LIBOR in June 2023.
 N.Y. Gen. Oblig. Law §§ 18-400(10) and 18-401(3).
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