Fed issues NPRM for default rules on certain LIBOR contracts
On July 19, the Federal Reserve Board announced in a notice of proposed rulemaking (NPRM) that it is soliciting comments on a proposal that provides default rules for certain contracts that use LIBOR, which would implement the Adjustable Interest Rate (LIBOR) Act. As previously covered by InfoBytes, LIBOR will be discontinued after June 30, 2023. The NPRM would establish benchmark replacements for the one-, three-, six-, and 12-month “tenors” of LIBOR where a given contract does not have terms that provide for the use of any substitute for the specified LIBOR rate. According to the NPRM, “[o]f particular concern are so-called ‘tough legacy contracts,’ which are contracts that reference USD LIBOR and will not mature by June 30, 2023, but which lack adequate fallback provisions providing for a clearly defined or practicable replacement benchmark following the cessation of USD LIBOR.” The proposal identifies separate Fed-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, and all other affected contracts. As required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate. Comments on the proposal are due 30 days after publication in the Federal Register.
Find continuing InfoBytes coverage on LIBOR here.