2022 Omnibus Signed into Law; Includes LIBOR Fix
March 14, 2022
On March 11, President Joe Biden signed an omnibus spending package for the 2022 fiscal year after a frenzied stretch of negotiations. While the macro components of the legislation include aid to Ukraine and $1.5 trillion to fund the government through September 30, an important component is the inclusion of a long-awaited legislative fix for financial contracts that do not consider LIBOR’s permanent cessation and have no workable fallbacks (so-called “tough legacy” contracts). The LIBOR bill will minimize the risk of litigation and adverse economic impacts associated with the transition and provide greater certainty to investors, businesses, and consumers.
Bill Addresses Trillions of Dollars of Tough Legacy LIBOR Contracts
There are currently trillions of dollars of outstanding contracts, securities, and loans that use LIBOR for their interest rates but do not have the appropriate contractual fallback language to facilitate the transition away from LIBOR. With all remaining U.S. dollar LIBOR tenors slated to cease publication in June 2023, federal legislation is critical to address these “tough legacy” contracts.
Without this fix, investors, servicers, and issuers of securities may have faced years of uncertainty, litigation, and changes in valuation, creating ambiguity that would lead to a reduction in liquidity and an increase in volatility. The bill also creates a safe harbor from litigation for parties that are covered by the legislation and prevents otherwise inevitable litigation costs and gridlock.
The LIBOR legislation was introduced in the Senate on March 2 by Senators Jon Tester (D-MT), Thom Tillis (R-NC), Senate Banking Committee Chairman Sherrod Brown (D-OH) and Ranking Member Pat Toomey (R-PA). The week prior, CREFC and 22 other financial trade associations submitted a letter to Senate Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-KY) strongly endorsing the legislation. The bill also had the endorsement of Fed Chair Powell, who referred to it as an important part of the transition. The House passed similar “tough legacy” legislation in late 2021 in a bill sponsored by Rep. Brad Sherman (D-CA-30).
Please reach out to Raj Aidasani with any questions.