Tester, Tillis Introduce LIBOR ‘Tough Legacy’ Bill; MBA, Trade Groups Urge Senate Support
Sens. Jon Tester, D-Mont., and Thom Tillis, R-N.C., yesterday introduced a bill that addresses “tough legacy” contracts that currently reference LIBOR. The Mortgage Bankers Association and more than two dozen industry trade groups sent a letter to Senate leadership in support of the bill.
The Economic Continuity and Stability Act (which does not yet have a number assigned to it) addresses trillions of dollars in outstanding contracts, securities and loans that use LIBOR for their interest rates but do not have appropriate contractual fallback language to facilitate the transition away from LIBOR when all U.S. dollar tenors cease to be published in June 2023.
The Senate bill mirrors H.R.4616, the Adjustable Interest Rate (LIBOR) Act of 2021, which passed the House in December. That bill, introduced by Rep. Brad Sherman, D-Calif., allows language in contracts to be amended or modified so that they have equal treatment once LIBOR is no longer published in June 2023.
The joint trades letter notes these particular contracts are extremely difficult to amend and are known as “tough legacy.”
“Without federal legislation to address these contracts, the letter cautioned, investors, consumers and issuers of securities could face years of uncertainty, litigation and a change in value, creating ambiguity that would lead to a reduction in liquidity and an increase in volatility,” the letter said.
The letter said the legislation provides a solution for these “tough legacy” contracts that have insufficient fallback language and cannot otherwise be easily amended among the parties. The legislation is narrowly crafted to allow parties to contracts that already have effective fallback provisions to opt-out of the legislation, and to only apply to tough legacy contracts so that new or future business will not be affected, while clarifying regulatory standards for the use of alternative reference rates going forward. In addition, the legislation offers uniform, equitable treatment for all U.S. contracts that fall under the federal legislation. 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.
“Industry participants, including consumer groups, investors, banks and issuers have all expressed the need for uniform federal legislation and urged swift congressional action,” the letter said.
Joining MBA in the letter:
Securities Industry and Financial Markets Association
Structured Finance Association
Bank Policy Institute
Commercial Real Estate Finance Council
Institute for Portfolio Alternatives
Government Finance Officers Association
Student Loan Servicing Alliance
The Real Estate Roundtable
Education Finance Council
The Financial Services Forum
The Loan Syndications and Trading Association
Institute of International Bankers
The International Swaps and Derivatives Association
Independent Community Bankers of America
National Association of Corporate Treasurers
U.S. Chamber of Commerce, Center for Capital Markets Competitiveness
Consumer Bankers Association
Housing Policy Council
Investment Company Institute
American Bankers Association
The American Council of Life Insurers
Mid-Size Bank Coalition of America