On March 15, President Biden signed, as part of a larger appropriations act, legislation known as the “Adjustable Interest Rate (LIBOR) Act,” which addresses “tough legacy” contracts that do not provide for the use of clearly defined or practicable replacement benchmark rates when LIBOR is discontinued. This development was welcomed by the market as it inches towards LIBOR discontinuation. Although certain states – most notably New York – have passed or are considering passing similar legislation, this federal legislation expressly supersedes “any provision of any State or local law, statute, rule, regulation, or standard” and establishes a uniform process, on a nationwide basis, for replacing LIBOR in tough legacy contracts.
ISDA Publishes Additional IBOR Consultations
On May 16, the International Swaps and Derivatives Association, Inc. (“ISDA”) published two consultations in connection with the potential discontinuation of certain interbank offered rates (“IBORs”), seeking input on (i) the replacement of USD LIBOR, CDOR and HIBOR (the “Second Benchmark Consultation”) and (ii) the preferred approach for addressing pre-cessation issues in derivatives that reference certain IBORs (the “Pre-Cessation Consultation”).  These Consultations follow an earlier consultation published by ISDA in July 2018 (the “First Benchmark Consultation” and, together with the Second Benchmark Consultation and the Pre-Cessation Consultation, the “Consultations”) relating to the potential discontinuation of numerous IBOR benchmark rates. READ MORE
LIBOR . . . Coming to an End?
Orrick lawyers authored an article titled “LIBOR . . . Coming to an End?” discussing the transition to the post-LIBOR era, with focus on legacy contracts that reference LIBOR. The article is available here.
ISDA Publishes IBOR Consultation Paper
On July 12, the International Swaps and Derivatives Association, Inc. (“ISDA”) initiated a market-wide consultation (the “Consultation”) on technical issues related to new benchmark fallbacks for derivatives referencing certain interbank offered rates, or IBORs, in response to the expected discontinuance of the publication of those IBORs at the end of 2021. The purpose of the Consultation is to ease the transition of the derivatives market from referencing existing IBOR rates to alternative risk-free-rates (“RFRs”) that have been identified as part of the global benchmark reforms. These RFRs are intended to be based on robust and highly liquid underlying markets that, unlike the relevant IBORs, do not require and are not based on submissions from panel banks or others.
LIBOR Discontinuance and the Derivatives Market
On July 27, the Chief Executive of the UK Financial Conduct Authority (“FCA”) announced that, after the end of 2021, the FCA would no longer use its power to persuade or compel panel banks to submit rate information used to determine the London Interbank Offered Rate, known as “LIBOR.” LIBOR serves as a benchmark rate for hundreds of trillions of dollars of securities, loans and transactions, including over-the-counter and exchange-traded derivatives. The total market of financial instruments based on LIBOR is approximately $350 trillion. READ MORE