New York Enacts First-in-Nation LIBOR Transition Law
New York provides a statutory fix for financial contracts governed by its law that lack effective fallback language for the cessation of LIBOR, mandating a shift to a recommended benchmark and providing a safe harbor from litigation.
New York has enacted the first state law in the U.S. to manage the transition away from the London Inter-bank Offered Rate (LIBOR). The law provides a statutory solution for legacy financial contracts governed by New York law that have inadequate or no provisions for replacing LIBOR once it is discontinued. For these "tough legacy" contracts, the law mandates the use of the benchmark replacement recommended by the Federal Reserve, the New York Fed, or the Alternative Reference Rates Committee, which is currently the Secured Overnight Financing Rate (SOFR).
This legislation provides critical legal certainty for a massive volume of financial instruments. It seeks to avert widespread disputes and litigation by deeming the recommended replacement a commercially reasonable substitute for LIBOR and providing a safe harbor from liability for parties that use it. The law does not override contracts that already specify a non-LIBOR-based fallback rate. Counsel should assess New York-law governed contract portfolios to identify agreements affected by this statutory fix. This law is also seen as a model for potential federal legislation and laws in other states.