– Libor was announced to be discontinued in 2021, with publication ceasing for certain maturities after December 31, 2021, and the remaining maturities ceasing after June 30, 2023.
– The ARRC identified the SOFR as its preferred alternative rate and published recommended fallback language for new debt issuances in the U.S.
– Florida introduced draft legislation (SB 1246 and HB 925) to address benchmark replacements for Libor in contracts where no or insufficient fallback language is provided.
– The legislation follows similar laws passed in New York and Alabama, which establish a process to elect a reliable replacement to Libor in certain contract circumstances. – The regulator and administrator of Libor announced the cessation of publication of certain USD and non-USD Libor maturities after Dec. 31, 2021, and all remaining USD Libor maturities after June 30, 2023.
– The ARRC in the U.S. identified SOFR as its preferred alternative rate to replace Libor.
– The ARRC has published recommended fallback language for new issuances of various debt instruments to address the discontinuation of Libor.
– Many U.S. law governed contracts referencing Libor do not include robust fallback language, which may result in material changes in the operation of those instruments and their expected returns when the rates are discontinued.
– Florida introduced draft legislation (SB 1246 and HB 925) addressing benchmark replacements for Libor for contracts governed by Florida law where no or insufficient fallback language is provided. – The proposed Florida legislation covers any contract, security, or instrument governed by Florida law.
– The legislation will impact covered agreements by disallowing fallback or fallback based on Libor, and requiring a recommended benchmark replacement based on SOFR
– Fallback provisions that provide for a benchmark replacement based on quotations are void and without effect. – If a Covered Agreement with Libor fallback provisions permits the selection of a benchmark replacement based on any Libor value or a commercially reasonable equivalent, the determining person can choose the “recommended benchmark replacement” after a “LIBOR discontinuance event.”
– Any applicable benchmark replacement conforming changes must become part of the Covered Agreement by law if the recommended benchmark replacement is chosen.
– No person can be held liable for damages or be subject to claims related to the selection or use of the recommended benchmark replacement or the implementation of benchmark replacement conforming changes. – The replacement of a recommended benchmark does not constitute an amendment or modification of any Covered Agreement, and it does not prejudice, impair, or affect any person’s rights, interests, or obligations under any Covered Agreement.
– The selection or use of a recommended benchmark replacement, as well as the determination, implementation, or performance of benchmark replacement conforming changes, does not impair or affect the right of any person to receive a payment under any Covered Agreement, nor does it discharge or excuse performance under any Covered Agreement for any reason, claim, or defense.
– The Law does not alter or impair any written agreement by all requisite parties regarding the applicability of a Covered Agreement to the Law, nor does it affect Covered Agreements with fallback provisions resulting in a benchmark replacement not based on Libor. It also does not apply to Covered Agreements in which a determining person does not elect to use a recommended benchmark replacement or uses a recommended benchmark replacement before a Libor discontinuance event occurs.
– Florida’s proposal follows New York and Alabama in establishing a process to elect a reliable replacement to Libor in contracts without fallback provisions, rely on any Libor value to calculate an alternate rate, or fail to identify a specific fallback rate or person with the authority to select such a rate. – The U.S. House of Representatives passed The Adjustable Interest Rate (LIBOR) Act on Dec. 8, 2021.
– The Act provides a replacement interest rate for loans, securities, and other financial instruments that rely on Libor.
– The legislation will not affect Libor-based contracts that can easily transition to an alternative interest rate.
– The Act may supersede and preempt state statutes, including any law enacted in Florida.
– For more information, contact the authors Douglas I. Youngman and Lara M. Rios or a member of Holland & Knight’s Tallahassee office.
– The information in the alert is for general education and knowledge and should not be used as the sole source of information for legal problems.
– Laws of each jurisdiction are different and constantly changing, and this information is not intended to create an attorney-client relationship.
https://www.hklaw.com/en/insights/publications/2022/01/summary-of-floridas-libor-discontinuance-law
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