STATE OF NEW YORK ________________________________________________________________________ 297--B Cal. No. 523 2021-2022 Regular Sessions IN SENATE (Prefiled) January 6, 2021 ___________ Introduced by Sen. THOMAS -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee -- reported favorably from said committee, ordered to first report, amended on first report, ordered to a second report and ordered reprinted, retaining its place in the order of second report AN ACT to amend the general obligations law, in relation to the discon- tinuance of the London interbank offered rate The People of the State of New York, represented in Senate and Assem- bly, do enact as follows: 1 Section 1. The general obligations law is amended by adding a new 2 article 18-C to read as follows: 3 ARTICLE 18-C 4 LIBOR DISCONTINUANCE 5 Section 18-400. Definitions. 6 18-401. Effect of LIBOR discontinuance on agreements. 7 18-402. Continuity of contract and safe harbor. 8 18-403. Severability. 9 § 18-400. Definitions. As used in this article the following terms 10 shall have the following meanings: 11 1. "LIBOR" shall mean, for purposes of the application of this article 12 to any particular contract, security or instrument, U.S. dollar LIBOR 13 (formerly known as the London interbank offered rate) as administered by 14 ICE Benchmark Administration Limited (or any predecessor or successor 15 thereof), or any tenor thereof, as applicable, that is used in making 16 any calculation or determination thereunder. 17 2. "LIBOR discontinuance event" shall mean the earliest to occur of 18 any of the following: EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD03775-03-1S. 297--B 2 1 a. a public statement or publication of information by or on behalf of 2 the administrator of LIBOR announcing that such administrator has ceased 3 or will cease to provide LIBOR, permanently or indefinitely, provided 4 that, at the time of the statement or publication, there is no successor 5 administrator that will continue to provide LIBOR; 6 b. a public statement or publication of information by the regulatory 7 supervisor for the administrator of LIBOR, the United States Federal 8 Reserve System, an insolvency official with jurisdiction over the admin- 9 istrator for LIBOR, a resolution authority with jurisdiction over the 10 administrator for LIBOR or a court or an entity with similar insolvency 11 or resolution authority over the administrator for LIBOR, which states 12 that the administrator of LIBOR has ceased or will cease to provide 13 LIBOR permanently or indefinitely, provided that, at the time of the 14 statement or publication, there is no successor administrator that will 15 continue to provide LIBOR; or 16 c. a public statement or publication of information by the regulatory 17 supervisor for the administrator of LIBOR announcing that LIBOR is no 18 longer representative. For purposes of this subdivision two, a public 19 statement or publication of information that affects one or more tenors 20 of LIBOR shall not constitute a LIBOR discontinuance event with respect 21 to any contract, security or instrument that (i) provides for only one 22 tenor of LIBOR, if such contract, security or instrument requires 23 interpolation and such tenor can be interpolated from LIBOR tenors that 24 are not so affected, or (ii) permits a party to choose from more than 25 one tenor of LIBOR and any of such tenors (A) is not so affected or (B) 26 if such contract, security or instrument requires interpolation, can be 27 interpolated from LIBOR tenors that are not so affected. 28 3. "LIBOR replacement date" shall mean: 29 a. in the case of a LIBOR discontinuance event described in paragraph 30 a or b of subdivision two of this section, the later of (i) the date of 31 the public statement or publication of information referenced therein; 32 and (ii) the date on which the administrator of LIBOR permanently or 33 indefinitely ceases to provide LIBOR; and 34 b. in the case of a LIBOR discontinuance event described in paragraph 35 c of subdivision two of this section, the date of the public statement 36 or publication of information referenced therein. For purposes of this 37 subdivision, a date that affects one or more tenors of LIBOR shall not 38 constitute a LIBOR replacement date with respect to any contract, secu- 39 rity or instrument that (i) provides for only one tenor of LIBOR, if 40 such contract, security or instrument requires interpolation and such 41 tenor can be interpolated from LIBOR tenors that are not so affected, or 42 (ii) permits a party to choose from more than one tenor of LIBOR and any 43 of such tenors (A) is not so affected or (B) if such contract, security 44 or instrument requires interpolation, can be interpolated from LIBOR 45 tenors that are not so affected. 46 4. "Fallback provisions" shall mean terms in a contract, security or 47 instrument that set forth a methodology or procedure for determining a 48 benchmark replacement, including any terms relating to the date on which 49 the benchmark replacement becomes effective, without regard to whether a 50 benchmark replacement can be determined in accordance with such method- 51 ology or procedure. 52 5. "Benchmark" shall mean an index of interest rates or dividend rates 53 that is used, in whole or in part, as the basis of or as a reference for 54 calculating or determining any valuation, payment or other measurement 55 under or in respect of a contract, security or instrument.S. 297--B 3 1 6. "Benchmark replacement" shall mean a benchmark, or an interest rate 2 or dividend rate (which may or may not be based in whole or in part on a 3 prior setting of LIBOR), to replace LIBOR or any interest rate or divi- 4 dend rate based on LIBOR, whether on a temporary, permanent or indefi- 5 nite basis, under or in respect of a contract, security or instrument. 6 7. "Recommended benchmark replacement" shall mean, with respect to any 7 particular type of contract, security or instrument, a benchmark 8 replacement based on SOFR, which shall include any recommended spread 9 adjustment and any benchmark replacement conforming changes, that shall 10 have been selected or recommended by a relevant recommending body with 11 respect to such type of contract, security or instrument. 12 8. "Recommended spread adjustment" shall mean a spread adjustment, or 13 method for calculating or determining such spread adjustment, (which may 14 be a positive or negative value or zero) that shall have been selected 15 or recommended by a relevant recommending body for a recommended bench- 16 mark replacement for a particular type of contract, security or instru- 17 ment and for a particular term to account for the effects of the transi- 18 tion or change from LIBOR to a recommended benchmark replacement. 19 9. "Benchmark replacement conforming changes" shall mean, with respect 20 to any type of contract, security or instrument, any technical, adminis- 21 trative or operational changes, alterations or modifications that are 22 associated with and reasonably necessary to the use, adoption, calcu- 23 lation or implementation of a recommended benchmark replacement and 24 that: 25 a. have been selected or recommended by a relevant recommending body; 26 and 27 b. if, in the reasonable judgment of the calculating person, the 28 benchmark replacement conforming changes selected or recommended pursu- 29 ant to paragraph a of this subdivision do not apply to such contract, 30 security or instrument or are insufficient to permit administration and 31 calculation of the recommended benchmark replacement, then benchmark 32 replacement conforming changes shall include such other changes, alter- 33 ations or modifications that, in the reasonable judgment of the calcu- 34 lating person: 35 (i) are necessary to permit administration and calculation of the 36 recommended benchmark replacement under or in respect of such contract, 37 security or instrument in a manner consistent with market practice for 38 substantially similar contracts, securities or instruments and, to the 39 extent practicable, the manner in which such contract, security or 40 instrument was administered immediately prior to the LIBOR replacement 41 date; and 42 (ii) would not result in a disposition of such contract, security or 43 instrument for U.S. federal income tax purposes. 44 10. "Determining person" shall mean, with respect to any contract, 45 security or instrument, in the following order of priority: 46 a. any person specified as a "determining person"; or 47 b. any person with the authority, right or obligation to: 48 (i) determine the benchmark replacement that will take effect on the 49 LIBOR replacement date, 50 (ii) calculate or determine a valuation, payment or other measurement 51 based on a benchmark, or 52 (iii) notify other persons of the occurrence of a LIBOR discontinuance 53 event, a LIBOR replacement date or a benchmark replacement. 54 11. "Relevant recommending body" shall mean the Federal Reserve Board, 55 the Federal Reserve Bank of New York, or the Alternative Reference Rates 56 Committee, or any successor to any of them.S. 297--B 4 1 12. "SOFR" shall mean, with respect to any day, the secured overnight 2 financing rate published for such day by the Federal Reserve Bank of New 3 York, as the administrator of the benchmark (or a successor administra- 4 tor), on the Federal Reserve Bank of New York's website. 5 13. "Calculating person" shall mean, with respect to any contract, 6 security or instrument, any person (which may be the determining person) 7 responsible for calculating or determining any valuation, payment or 8 other measurement based on a benchmark. 9 14. "Contract, security, or instrument" shall include, without limita- 10 tion, any contract, agreement, mortgage, deed of trust, lease, security 11 (whether representing debt or equity, and including any interest in a 12 corporation, a partnership or a limited liability company), instrument, 13 or other obligation. 14 § 18-401. Effect of LIBOR discontinuance on agreements. 1. On the 15 LIBOR replacement date, the recommended benchmark replacement shall, by 16 operation of law, be the benchmark replacement for any contract, securi- 17 ty or instrument that uses LIBOR as a benchmark and: 18 a. contains no fallback provisions; or 19 b. contains fallback provisions that result in a benchmark replace- 20 ment, other than a recommended benchmark replacement, that is based in 21 any way on any LIBOR value. 22 2. Following the occurrence of a LIBOR discontinuance event, any fall- 23 back provisions in a contract, security, or instrument that provide for 24 a benchmark replacement based on or otherwise involving a poll, survey 25 or inquiries for quotes or information concerning interbank lending 26 rates or any interest rate or dividend rate based on LIBOR shall be 27 disregarded as if not included in such contract, security or instrument 28 and shall be deemed null and void and without any force or effect. 29 3. This subdivision shall apply to any contract, security, or instru- 30 ment that uses LIBOR as a benchmark and contains fallback provisions 31 that permit or require the selection of a benchmark replacement that is: 32 a. based in any way on any LIBOR value; or 33 b. the substantive equivalent of paragraph a, b or c of subdivision 34 one of section 18-402 of this article. 35 A determining person shall have the authority under this article, but 36 shall not be required, to select on or after the occurrence of a LIBOR 37 discontinuance event the recommended benchmark replacement as the bench- 38 mark replacement. Such selection of the recommended benchmark replace- 39 ment shall be: 40 (i) irrevocable; 41 (ii) made by the earlier of either the LIBOR replacement date, or the 42 latest date for selecting a benchmark replacement according to such 43 contract, security, or instrument; and 44 (iii) used in any determinations of the benchmark under or with 45 respect to such contract, security or instrument occurring on and after 46 the LIBOR replacement date. 47 4. If a recommended benchmark replacement becomes the benchmark 48 replacement for any contract, security, or instrument pursuant to subdi- 49 vision one or subdivision three of this section, then all benchmark 50 replacement conforming changes that are applicable (in accordance with 51 the definition of benchmark replacement conforming changes) to such 52 recommended benchmark replacement shall become an integral part of such 53 contract, security, or instrument by operation of law. 54 5. The provisions of this article shall not alter or impair: 55 a. any written agreement by all requisite parties that, retrospective- 56 ly or prospectively, a contract, security, or instrument shall not beS. 297--B 5 1 subject to this article without necessarily referring specifically to 2 this article. For purposes of this subdivision, "requisite parties" 3 means all parties required to amend the terms and provisions of a 4 contract, security, or instrument that would otherwise be altered or 5 affected by this article; 6 b. any contract, security or instrument that contains fallback 7 provisions that would result in a benchmark replacement that is not 8 based on LIBOR, including, but not limited to, the prime rate or the 9 federal funds rate, except that such contract, security or instrument 10 shall be subject to subdivision two of this section; 11 c. any contract, security, or instrument subject to subdivision three 12 of this section as to which a determining person does not elect to use a 13 recommended benchmark replacement pursuant to subdivision three of this 14 section or as to which a determining person elects to use a recommended 15 benchmark replacement prior to the occurrence of a LIBOR discontinuance 16 event, except that such contract, security, or instrument shall be 17 subject to subdivision two of this section; or 18 d. the application to a recommended benchmark replacement of any cap, 19 floor, modifier, or spread adjustment to which LIBOR had been subject 20 pursuant to the terms of a contract, security, or instrument. 21 6. Notwithstanding the uniform commercial code or any other law of 22 this state, this title shall apply to all contracts, securities and 23 instruments, including contracts, with respect to commercial trans- 24 actions, and shall not be deemed to be displaced by any other law of 25 this state. 26 § 18-402. Continuity of contract and safe harbor. 1. The selection or 27 use of a recommended benchmark replacement as a benchmark replacement 28 under or in respect of a contract, security or instrument by operation 29 of section 18-401 of this article shall constitute: 30 a. a commercially reasonable replacement for and a commercially 31 substantial equivalent to LIBOR; 32 b. a reasonable, comparable or analogous term for LIBOR under or in 33 respect of such contract, security or instrument; 34 c. a replacement that is based on a methodology or information that is 35 similar or comparable to LIBOR; and 36 d. substantial performance by any person of any right or obligation 37 relating to or based on LIBOR under or in respect of a contract, securi- 38 ty or instrument. 39 2. None of: a. a LIBOR discontinuance event or a LIBOR replacement 40 date, b. the selection or use of a recommended benchmark replacement as 41 a benchmark replacement; or c. the determination, implementation or 42 performance of benchmark replacement conforming changes, in each case, 43 by operation of section 18-401 of this article, shall: 44 (i) be deemed to impair or affect the right of any person to receive a 45 payment, or affect the amount or timing of such payment, under any 46 contract, security, or instrument; or 47 (ii) have the effect of (A) discharging or excusing performance under 48 any contract, security or instrument for any reason, claim or defense, 49 including, but not limited to, any force majeure or other provision in 50 any contract, security or instrument; (B) giving any person the right to 51 unilaterally terminate or suspend performance under any contract, secu- 52 rity or instrument; (C) constituting a breach of a contract, security or 53 instrument; or (D) voiding or nullifying any contract, security or 54 instrument. 55 3. No person shall have any liability for damages to any person or be 56 subject to any claim or request for equitable relief arising out of orS. 297--B 6 1 related to the selection or use of a recommended benchmark replacement 2 or the determination, implementation or performance of benchmark 3 replacement conforming changes, in each case, by operation of section 4 18-401 of this article, and such selection or use of the recommended 5 benchmark replacement or such determination implementation or perform- 6 ance of benchmark replacement conforming changes shall not give rise to 7 any claim or cause of action by any person in law or in equity. 8 4. The selection or use of a recommended benchmark replacement or the 9 determination, implementation, or performance of benchmark replacement 10 conforming changes, by operation of section 18-401 of this article, 11 shall be deemed to: 12 a. not be an amendment or modification of any contract, security or 13 instrument; and 14 b. not prejudice, impair or affect any person's rights, interests or 15 obligations under or in respect of any contract, security or instrument. 16 5. Except as provided in either subdivision one or subdivision three 17 of section 18-401 of this article, the provisions of this article shall 18 not be interpreted as creating any negative inference or negative 19 presumption regarding the validity or enforceability of: 20 a. any benchmark replacement that is not a recommended replacement 21 benchmark; 22 b. any spread adjustment, or method for calculating or determining a 23 spread adjustment, that is not a recommended spread adjustment; or 24 c. any changes, alterations or modifications to or in respect of a 25 contract, security or instrument that are not benchmark replacement 26 conforming changes. 27 § 18-403. Severability. If any provision of this article or applica- 28 tion thereof to any person or circumstance is held invalid, the invalid- 29 ity shall not affect other provisions or applications of this article 30 that can be given effect without the invalid provision or application, 31 and to this end the provisions of this article shall be severable. 32 § 2. This act shall take effect immediately.