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Authored by Lisa Fried, Marc Gottridge and Brittany Crosby-Banyai, from Herbert Smith Freehills, an international law firm.

President Biden on March 15, 2022 signed into law the Adjustable Interest Rate (LIBOR) Act, long-awaited federal legislation to address the potential disruption of contractual continuity and litigation risk posed by financial instruments that incorporated US Dollar LIBOR as a term for the payment of interest but lacked a workable - or in some cases, any - "fallback" rate to replace LIBOR in the event of its cessation, which is now a reality. Such contracts will now be amended by operation of law so as to replace benchmarks based on LIBOR with a rate based on the Secured Overnight Financing Rate (SOFR), unless an eligible person under the contract already has designated another benchmark for the contract or it has been amended by the parties. The federal legislation - part of the massive Consolidated Appropriations Act, 2022 - fills a void that until recently had been only partially filled by state laws aimed at addressing the same problem and will decrease risks of default and litigation. The law directs the Board of Governors of the Federal Reserve to issue regulations to carry out its mandate within 180 days.

Background

LIBOR, long the preeminent global interest-rate benchmark, ended as of December 31, 2021, in nearly all currencies and tenors (maturities) - and although regulators granted US Dollar LIBOR in several tenors ......................

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