MBA, Trade Groups Urge Senate Support of ‘Tough Legacy’ LIBOR Bill

The Mortgage Bankers Association and more than a dozen industry trade groups on Monday urged Senate leadership to support legislation that would address “tough legacy” contracts that currently reference the soon-to-expire London InterBank Offered Rate.

The bipartisan legislation, introduced by Sens. Jon Tester, D-Mont., and Thom Tillis, R-N.C., 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 letter emphasizes the importance of addressing these “tough legacy” contracts. After June 2023, all tenors of U.S. dollar LIBOR, which underpins nearly $200 trillion in financial contracts, will cease to be published. As a result, trillions of dollars of hard-to-modify financial contracts, securities and loans exist that use LIBOR – known as “tough legacy” contracts – could be unable, before this end date, to either convert to a non-LIBOR rate or amend the contracts to add adequate fallback language to another rate.

“Without federal legislation to address these contracts, investors, consumers and issuers of securities may 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 Tester/Tillis legislation, the letter said, 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. 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: Bank Policy Institute; Commercial Real Estate Finance Council; Education Finance Council; Financial Services Forum; Government Finance Officers Association; Independent Community Bankers of America; Institute of International Bankers; Institute for Portfolio Alternatives; International Swaps and Derivatives Association; Loan Syndications and Trading Association; National Association of Corporate Treasurers; Securities Industry and Financial Markets Association; Structured Finance Association; Student Loan Servicing Alliance The Real Estate Roundtable; and the U.S. Chamber of Commerce, Center for Capital Markets Competitiveness.17