In an attempt to minimize the legal uncertainty and adverse economic impacts associated with the transition away from U.S. dollar LIBOR (LIBOR) in contracts that lack adequate fallback provisions, on March 24, 2021, the New York State Legislature passed a Senate Bill to address these issues. Then on April 6, 2021, New York Governor Andrew Cuomo signed the bill into law. The law is in new article 18-C of the New York General Obligations Law.
The legislation provides that, upon a “LIBOR discontinuance event,” by operation of law, the recommended benchmark replacement shall be the benchmark replacement to LIBOR on the benchmark replacement date in any contract, security, or instrument where (i) there is no fallback to LIBOR, or (ii) the fallback is based in any way on a LIBOR value (e.g., the last available LIBOR value). Given the definitions of relevant terms in this law, this will result in a fallback to a Secured Overnight Financing Rate (SOFR)-based rate plus the credit spread adjustment recommended by the relevant governing body. As a result, the SOFR plus a credit spread adjustment and appropriate conforming changes will be introduced into affected contracts.
“LIBOR discontinuance events” follow the recommended language of “Benchmark Transition Events” published by the Alternative Reference Rates Committee and so capture, amongst other things, (a) public statements by the ICE Benchmark Administration that it will cease to provide LIBOR where, at the time of such statement, there is no successor administrator to provide LIBOR, and (b) the UK’s Financial Conduct Authority (FCA) announcing that LIBOR is no longer representative. The FCA has already stated that one-week and two-month LIBOR will cease to be published after the end of 2021 and that the other tenors of LIBOR (the overnight, one-month, three-month, six-month and 12-month settings) will cease to be published on a representative basis after June 30, 2023.