[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4616 Introduced in House (IH)]
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117th CONGRESS
1st Session
H. R. 4616
To deem certain references to LIBOR as referring to a replacement
benchmark rate upon the occurrence of certain events affecting LIBOR,
and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 22, 2021
Mr. Sherman introduced the following bill; which was referred to the
Committee on Financial Services, and in addition to the Committees on
Ways and Means, and Education and Labor, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee
concerned
_______________________________________________________________________
A BILL
To deem certain references to LIBOR as referring to a replacement
benchmark rate upon the occurrence of certain events affecting LIBOR,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Adjustable Interest Rate (LIBOR) Act
of 2021''.
SEC. 2. FINDINGS AND PURPOSE.
(a) Findings.--The Congress finds that--
(1) LIBOR is used as a benchmark rate in more than $200
trillion of contracts worldwide;
(2) a significant number of existing contracts that
reference LIBOR do not provide for the use of a clearly defined
or practicable replacement benchmark rate when LIBOR is
discontinued; and
(3) the cessation or non-representativeness of LIBOR could
result in disruptive litigation related to existing contracts
that do not provide for the use of a clearly defined or
practicable replacement benchmark rate.
(b) Purpose.--It is the purpose--
(1) of this Act--
(A) to establish a clear and uniform process, on a
nationwide basis, for replacing LIBOR in existing
contracts the terms of which do not provide for the use
of a clearly defined or practicable replacement
benchmark rate, without affecting the ability of
parties to use any appropriate benchmark rate in new
contracts;
(B) to preclude litigation related to existing
contracts the terms of which do not provide for the use
of a clearly defined or practicable replacement
benchmark rate; and
(C) to allow existing contracts that reference
LIBOR but provide for the use of a clearly defined
fallback and practicable replacement rate, to operate
according to their terms; and
[(2) of section 6 to provide that modifications of existing
contracts pursuant to this chapter do not result in recognition
of gain or loss for Federal income tax purposes and to provide
authority to the Secretary of the Treasury to provide clear
guidance regarding the Federal income tax consequences of
transitioning contracts that reference IBORs to replacement
benchmark rates.]
SEC. 3. DEFINITIONS.
As used in this Act, the following terms shall have the following
meanings:
(1) ``Benchmark'' shall mean an index of interest rates or
dividend rates that is used, in whole or in part, as the basis
of or as a reference for calculating or determining any
valuation, payment or other measurement.
(2) ``Benchmark Administrator'' means a person that
publishes a Benchmark for use by third parties.
(3) ``Benchmark Replacement'' shall mean a Benchmark, or an
interest rate or dividend rate (which may or may not be based
in whole or in part on a prior setting of LIBOR), to replace
LIBOR or any interest rate or dividend rate in LIBOR, whether
on a temporary, permanent, or indefinite basis, under or in
respect of a LIBOR Contract.
(4) ``Benchmark Replacement Conforming Changes'' shall
mean, with respect to any LIBOR Contract, any documented
technical, administrative, or operational changes, alterations,
or modifications that, in the reasonable judgment of a
Calculating Person, are necessary or appropriate to permit the
administration and calculation of the Board-Selected Benchmark
Replacement under or in respect of such LIBOR Contract in a
manner consistent with relevant market practice or
recommendations for similar types of LIBOR Contracts and, to
the extent practicable, the manner in which such LIBOR Contract
was administered immediately prior to the LIBOR Replacement
Date.
(5) ``Board'' means the Board of Governors of the Federal
Reserve System.
(6)(A) ``Board-Selected Benchmark Replacement'' shall mean
a Benchmark Replacement identified by the Board that is based
on SOFR.
(B) The Board shall adjust the Board-Selected Benchmark
Replacement for each category of LIBOR Contract that the Board
may identify to--
(i) apply to each LIBOR tenor; and
(ii) incorporate the relevant Tenor Spread
Adjustment. (C) For consumer loans, the Board-Selected
Benchmark Replacement shall initially reflect the
spread between the Board-Selected Benchmark Replacement
and LIBOR immediately before the LIBOR Replacement Date
and shall incorporate the relevant Tenor Spread
Adjustment over a one-year transition period.
(7) ``Calculating Person'' shall mean, with respect to any
LIBOR Contract, any person (which may be the Determining
Person) responsible for calculating or determining any
valuation, payment, or other measurement based on a Benchmark.
(8) ``Determining Person'' shall mean, with respect to any
LIBOR Contract, any person with the authority, right, or
obligation, including on a temporary basis, (as identified by
the provisions of the LIBOR Contract, or as identified by the
governing law of the LIBOR Contract, as appropriate) to
determine a Benchmark Replacement.
(9) ``Fallback Provisions'' shall mean terms in a LIBOR
Contract for determining a Benchmark Replacement, including any
terms relating to the date on which the Benchmark Replacement
becomes effective.
(10) ``LIBOR'' shall mean the overnight and 1-, 3-, 6-, and
12-month tenors of U.S. dollar LIBOR (formerly known as the
London interbank offered rate) as administered by ICE Benchmark
Administration Limited (or any predecessor or successor
thereof). LIBOR shall not include the 1-week or 2-month tenors
of U.S. dollar LIBOR.
(11) ``LIBOR Contract'' shall mean, without limitation, any
contract, agreement, indenture, organizational documents,
guarantee, mortgage, deed of trust, lease, Security (whether
representing debt or equity, and including any interest in a
corporation, a partnership, or a limited liability company),
instrument, or other obligation or asset that, by its terms,
continues in any way to use LIBOR as a Benchmark as of the
applicable LIBOR Replacement Date.
(12) ``LIBOR Replacement Date'' shall mean the first London
banking day after June 30, 2023, unless the Board determines
that any LIBOR tenor will cease to be published or cease to be
representative on a different date.
(13) ``Security'' shall have the meaning assigned to such
term in section 2(a) of the Securities Act of 1933 (15 U.S.C.
77b(a)).
(14) ``SOFR'' shall mean the Secured Overnight Financing
Rate published by the Federal Reserve Bank of New York (or a
successor administrator).
[(15) ``Tax-Relevant IBOR'' shall mean LIBOR, any tenor of
non-U.S. dollar currency rates formerly known as the London
interbank offered rate as administered by ICE Benchmark
Administration Limited (or any predecessor or successor
administrator thereof), and any other interbank offered rates
that are expected to cease.]
[(16) ``Tax-Relevant IBOR Contract'' shall mean, without
limitation, any contract, agreement, mortgage, deed of trust,
lease, Security (whether representing debt or equity, and
including any interest in a corporation, a partnership, or a
limited liability company), instrument or other obligation that
uses an IBOR as a Benchmark.]
(17) ``Tenor Spread Adjustment'' shall mean--
(A) 0.00644 percent for overnight LIBOR;
(B) 0.11448 percent for 1-month LIBOR;
(C) 0.26161 percent for 3-month LIBOR;
(D) 0.42826 percent for 6-month LIBOR; and
(E) 0.71513 percent for 12-month LIBOR.
SEC. 4. LIBOR CONTRACTS.
(a) On the LIBOR Replacement Date, the Board-Selected Benchmark
Replacement shall, by operation of law, be the Benchmark Replacement
for any LIBOR Contract that, after giving any effect to subsection (b),
contains no Fallback Provisions.
(b) On the LIBOR Replacement Date, any Fallback Provisions in a
LIBOR Contract that provide for a Benchmark Replacement that is based
in any way on any LIBOR value or require a person (other than a
Benchmark Administrator) to conduct a poll, survey, or inquiries for
quotes or information concerning interbank lending or deposit rates
shall be disregarded as if not included in such LIBOR Contract and
shall be deemed null and void and without any force or effect.
(c) Subject to subsection (g)(2), a Determining Person shall have
authority under this Act, but shall not be required, to select the
Board-Selected Benchmark Replacement as the Benchmark Replacement.
(d) Any selection by a Determining Person of the Board-Selected
Benchmark Replacement pursuant to subsection (c) shall be--
(1) irrevocable;
(2) made by the earlier of the LIBOR Replacement Date and
the latest date for selecting a Benchmark Replacement according
to the terms of such LIBOR Contract; and
(3) used in any determinations of the Benchmark under or in
respect of such LIBOR Contract occurring on and after the LIBOR
Replacement Date.
(e) If a Determining Person has authority to select the Board-
Selected Benchmark Replacement under subsection (c) but does not select
a Benchmark Replacement by the date specified in subsection (d)(2),
then, on the LIBOR Replacement Date, the Board-Selected Benchmark
Replacement shall, by operation of law, be the Benchmark Replacement
for the LIBOR Contract.
(f) If the Board-Selected Benchmark Replacement becomes the
Benchmark Replacement for a LIBOR Contract pursuant to subsection (a),
(c), or (e) then all Benchmark Replacement Conforming Changes shall
become an integral part of such LIBOR Contract by operation of law. For
the avoidance of doubt, a Calculating Person shall not, unless
explicitly required under the terms of the LIBOR Contract, be required
to obtain consent from, or give advance notice to, any other person
prior to the adoption of Benchmark Replacement Conforming Changes.
(g) The provisions of this Act shall not alter or impair--
(1) any written agreement specifying that a LIBOR Contract
shall not be subject to this Act;
(2) any LIBOR Contract that contains Fallback Provisions
that identify a Benchmark Replacement that is not based in any
way on any LIBOR value (including, but not limited to, the
prime rate or the Effective Federal Funds Rate), except that
such LIBOR Contract shall be subject to subsection (b);
(3) any LIBOR Contract subject to subsection (c) as to
which a Determining Person does not elect to use a Board-
Selected Benchmark Replacement pursuant to subsection (c),
except to the extent that such LIBOR Contract is subject to
subsection (b) or (e);
(4) the application to a Board-Selected Benchmark
Replacement of any cap, floor, modifier, or spread adjustment
to which LIBOR had been subject pursuant to the terms of a
LIBOR Contract; or
(5) any provisions of Federal consumer financial law as
defined in section 1002 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C. 5481), and any Benchmark
Replacement and the transition to it must be in accordance with
such law.
SEC. 5. CONTINUITY OF CONTRACT AND SAFE HARBOR.
(a) A Board-Selected Benchmark Replacement and the selection or use
of a Board-Selected Benchmark Replacement as a Benchmark Replacement
under or in respect of a LIBOR Contract, as well as any Benchmark
Replacement Conforming Changes, by operation of section 4 shall
constitute--
(1) a commercially reasonable replacement for and a
commercially substantial equivalent to LIBOR;
(2) a reasonable, comparable, or analogous rate, index, or
term for LIBOR;
(3) a replacement that is based on a methodology or
information that is similar or comparable to LIBOR;
(4) substantial performance by any person of any right or
obligation relating to or based on LIBOR; and
(5) a replacement that has historical fluctuations that are
substantially similar to those of LIBOR for purposes of the
Truth in Lending Act and its implementing regulations.
(b) Neither of (1) the selection or use of a Board-Selected
Benchmark Replacement as a Benchmark Replacement or (2) the
determination, implementation, or performance of Benchmark Replacement
Conforming Changes, in each case by operation of section 4, shall (A)
be deemed to impair or affect the right of any person to receive a
payment, or to affect the amount or timing of such payment, under any
LIBOR Contract or (B) have the effect of (i) discharging or excusing
performance under any LIBOR Contract for any reason, claim, or defense
(including, but not limited to, any force majeure or other provision in
any LIBOR Contract), (ii) giving any person the right to unilaterally
terminate or suspend performance under any LIBOR Contract, (iii)
constituting a breach of any LIBOR Contract, or (iv) voiding or
nullifying any LIBOR Contract.
(c) No person shall be subject to any claim or cause of action in
law or equity or request for equitable relief, or have liability for
damages, arising out of or related to the selection or use of a Board-
Selected Benchmark Replacement or the determination, implementation, or
performance of Benchmark Replacement Conforming Changes, in each case
by operation of section 4; provided, however, that any person
(including a Calculating Person) shall remain subject to any existing
[legal, regulatory, or contractual] obligations to correct servicing or
other ministerial errors under or in respect of a LIBOR Contract.
(d) The selection or use of a Board-Selected Benchmark Replacement
or the determination, implementation, or performance of Benchmark
Replacement Conforming Changes, in each case by operation of section 4,
shall not be deemed to--
(1) be an amendment or modification of any LIBOR Contract;
or
(2) prejudice, impair, or affect any person's rights,
interests, or obligations under or in respect of any LIBOR
Contract.
(e) Except as provided in either subsections (a), (b), or (c) of
section 4, the provisions of this Act shall not be interpreted as
creating any negative inference or negative presumption regarding the
validity or enforceability of--
(1) any Benchmark Replacement (including any method for
calculating, determining, or implementing an adjustment to the
Benchmark Replacement to account for any historical differences
between LIBOR and the Benchmark Replacement) that is not a
Board-Selected Benchmark Replacement; or
(2) any changes, alterations, or modifications to or in
respect of a LIBOR Contract that are not Benchmark Replacement
Conforming Changes.
[SEC. 6. TAX TREATMENT AND TAX REGULATIONS FOR IBOR TRANSITION.
[(a) None of--]
[(1) the selection or use of a Board-Selected Benchmark
Replacement as a Benchmark Replacement,]
[(2) the determination, implementation or performance of
Benchmark Replacement Conforming Changes, or]
[(3) the application to any LIBOR Contract of, or the
agreement by parties thereto to terms consistent with, section
4,]
shall be treated as a sale, exchange, or other disposition of property
for purposes of section 1001 of the Internal Revenue Code of 1986.
[(b) Not later than 180 days after the date of enactment of this
Act, the Secretary of the Treasury shall issue such regulations as may
be necessary or appropriate to carry out subsection (a) and address the
Federal income tax consequences of transitioning a Tax-Relevant IBOR
Contract to a replacement benchmark rate. Such regulations shall
[prioritize a smooth transition from the use of a Tax-Relevant IBOR]/
[balance the need for a smooth transition from the use of a Tax-
Relevant IBOR with the prevention of inappropriate tax planning].]
SEC. 7. PREEMPTION.
(a) This Act and the regulations hereunder shall supersede any and
all laws, statutes, rules, regulations, or standards of any State, the
District of Columbia, or any territory or possession of the United
States, insofar as they provide for the selection or use of a Benchmark
Replacement or related conforming changes.
(b) No provision of State or local law that expressly limits the
manner of calculating interest, including the compounding of interest,
shall apply to the selection or use of a Board-Selected Benchmark
Replacement or Benchmark Replacement Conforming Changes.
SEC. 8. TRUST INDENTURE ACT OF 1939.
Section 316 of the Trust Indenture Act of 1939 (15 U.S.C. 77ppp) is
amended--
(1) by striking ``and'' after ``of subsection (a),'' in
subsection (b); and
(2) by inserting ``, and except that the right of any
holder of any indenture security to receive payment of the
principal of and interest on such indenture security shall not
be deemed to be impaired or affected by any change occurring by
the application of section 4 of the Adjustable Interest Rate
(LIBOR) Act of 2021 to any indenture security'' after ``subject
to such lien'' in subsection (b).
SEC. 9. SPECIAL ALLOWANCE PAYMENTS FOR LEGACY FEDERAL STUDENT LOANS.
Section 438(b)(2)(I) of the Higher Education Act (20 U.S.C. 1087-
1(b)(2)(I)) is amended by striking ``of the 1-month London Inter Bank
Offered Rate (LIBOR) for United States dollars in effect for each of
the days in such quarter as compiled and released by the British
Bankers Association'' and inserting ``of 1-month LIBOR for United
States dollars in effect for each of the days in such quarter as
administered by ICE Benchmark Administration Limited (or any successor)
or (as determined by the Secretary) any replacement benchmark rate for
contracts established by the Board of Governors of the Federal Reserve
System under the Adjustable Interest Rate (LIBOR) Act of 2021.''.
SEC. 10. RULEMAKING.
Not later than 180 days after the date of enactment of this Act,
the Board shall issue such regulations as may be necessary or
appropriate to enable it to administer and carry out the purposes of
this Act, other than section 6.
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