Beaumont Discusses Proposed Legislative Solution to Libor Transition in Law360
Friedman Kaplan litigation partner Anne Beaumont has published an expert analysis article in Law360 titled "Legislative Fix For Post-Libor Issues Seems Improbable."
In the article, Ms. Beaumont discusses legislation that the Alternative Reference Rates Committee (ARRC) of the Federal Reserve Board of Governors and the Federal Reserve Bank of New York are considering asking the New York State Legislature to pass that would apply to certain types of existing or “legacy” contracts referencing Libor. The purpose of the legislation would be to address an expected backlog of potentially thousands of contracts that cannot practicably be amended prior to the end of 2021. The contemplated legislation currently is focused on floating rate notes and securitizations because, to change a term such as the interest rate, they generally require unanimous noteholder consent, which would be nearly impossible to obtain. An inability to amend such contracts would mean that either they would have no fallback language at all, leaving holders and issuers alike in a quandary as to the applicable interest rate, or they would convert to a fixed rate, such as the last-quoted Libor.
Ms. Beaumont identifies and discusses two potential obstacles to the use of legislation to address this issue. For one, there is a serious question whether there is the political interest or will on the part of lawmakers to pass such a statute given that it will result in an economic advantage to some counterparties at the expense of others. Moreover, even if the interest and will are there, such a statute could run afoul of the United States Constitution or the New York State Constitution.
In light of these considerations, Ms. Beaumont concludes that, although the ARRC’s desire to address the significant operational challenges presented by the need to amend thousands of contracts is understandable, doing so by amending contracts wholesale through legislation, and without the knowledge or consent of at least some of the parties to those contracts, seems likely to be unworkable.
The full article can be found here.