The legislation provides a safe harbor under New York law from litigation for the use of the recommended benchmark replacement.
A new bill has been introduced in the New York State Senate that will establish a fallback benchmark for contracts tied to USD LIBOR that lack language to deal with the benchmark’s cessation.
The legislation is aimed at keeping trillions of dollars in securities and commercial transactions governed by New York law from becoming subject to lawsuits when LIBOR is discontinued at end-2021.
The bill seeks to enacts provisions that would prohibit parties from refusing to perform contractual obligations or declaring a breach of contract as a result of the end of LIBOR or the use of a replacement benchmark rate.
It will also establish that the replacement is a “commercially reasonable substitute for and a commercially substantial equivalent to LIBOR”. The fallback rate would be recommended by the Federal Reserve Board, the New York Fed, or ARRC (Alternative Reference Rates Committee).
The legislation provides a safe harbor from litigation for the use of the recommended benchmark replacement.
“The purpose of this bill is to minimise costly and disruptive litigation by providing legal certainty for the issues arising under New York resulting from the permanent discontinuance of LIBOR,” the bill says.
The bill is available in full here.
Additional reporting from Bloomberg Law.