[House Report 117-206]
[From the U.S. Government Publishing Office]
117th Congress } { Rept. 117-206
HOUSE OF REPRESENTATIVES
1st Session } { Part 1
======================================================================
ADJUSTABLE INTEREST RATE (LIBOR) ACT OF 2021
_______
December 7, 2021.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Waters, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 4616]
The Committee on Financial Services, to whom was referred
the bill (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,
having considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 5
Background and Need for Legislation.............................. 5
Section-by-Section Analysis of the Legislation................... 8
Hearings......................................................... 9
Committee Consideration.......................................... 10
Committee Votes.................................................. 10
Committee Correspondence......................................... 11
Committee Oversight Findings..................................... 16
Statement of Performance Goals and Objectives.................... 16
New Budget Authority and C.B.O. Cost Estimate.................... 16
Committee Cost Estimate.......................................... 16
Federal Mandates Statement....................................... 16
Advisory Committee Statement..................................... 16
Applicability to Legislative Branch.............................. 17
Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits....................................................... 17
Duplicative Federal Programs..................................... 17
Changes in Existing Law Minority Views........................... 17
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
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 of this Act--
(1) 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;
(2) 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
(3) 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.
(c) Rule of Construction.--Nothing in this Act shall be construed to
disfavor the use of any benchmark rate on a prospective basis.
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 based on LIBOR,
whether on a temporary, permanent, or indefinite basis, under
or in respect of a LIBOR Contract.
(4) ``Benchmark Replacement Conforming Changes'' shall mean
any technical, administrative, or operational changes,
alterations, or modifications that--
(A) the Board establishes for the purpose of
facilitating the implementation, administration, and
calculation of the Board-Selected Benchmark
Replacement; or
(B) in the reasonable judgment of a Calculating
Person, are otherwise necessary or appropriate to
permit the implementation, administration, and
calculation of the Board-Selected Benchmark Replacement
under or in respect of a LIBOR Contract after giving
due consideration to any Benchmark Replacement
Conforming Changes under subparagraph (A).
(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) ``Consumer Loan'' shall mean a consumer credit
transaction. For purposes of this paragraph, the terms
``consumer'' and ``credit'' have the meaning given those terms,
respectively, under section 103 of the Truth in Lending Act (15
U.S.C. 1602).
(9) ``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.
(10) ``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.
(11) ``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.
(12) ``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.
(13) ``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.
(14) ``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)).
(15) ``SOFR'' shall mean the Secured Overnight Financing Rate
published by the Federal Reserve Bank of New York (or a
successor administrator).
(16) ``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)--
(1) contains no Fallback Provisions; or
(2) contains Fallback Provisions that identify neither--
(A) a specific Benchmark Replacement; nor
(B) a Determining Person.
(b) On the LIBOR Replacement Date, any references in the Fallback
Provisions of a LIBOR Contract to--
(1) a Benchmark Replacement that is based in any way on any
LIBOR value, except to account for the difference between LIBOR
and the Benchmark Replacement, or
(2) a requirement that a person (other than a Benchmark
Administrator) conduct a poll, survey, or inquiries for quotes
or information concerning interbank lending or deposit rates,
shall be disregarded as if not included in the Fallback Provisions of
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 be required to
obtain consent from 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 that
requires creditors to notify borrowers regarding a change-in-
terms.
(h) Except as provided in section 5(c), the provisions of this Act
shall not alter or impair the rights or obligations of any person, or
the authorities of any agency, under Federal consumer financial law (as
defined in section 1002(14) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5481(14)).
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 solely out of 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. 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. 7. 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. 8. 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.
SEC. 9. INTERBANK OFFERED RATE TRANSITION RULE OF CONSTRUCTION.
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 transfer, disposition, or conversion of property.
Purpose and Summary
On July 22, 2021, Representative Brad Sherman introduced
H.R. 4616, the Adjustable Interest Rate (LIBOR) Act of 2021,
which would establish a process for certain financial contracts
that reference the London Interbank Offered Rate (LIBOR) and do
not contain sufficient language that would allow them to
continue to function as originally intended after LIBOR is
discontinued, to instead reference Secured Overnight Financing
Rate (SOFR), or an appropriately adjusted form of SOFR without
the need to be amended or subject to litigation. The bill
directs the Federal Reserve Board to issue regulations
regarding the appropriate SOFR or adjusted SOFR replacement
reference interest rate that should be used for specific
categories of LIBOR-based contracts that fall within the scope
of the legislation.
Background and Need for Legislation
The London Interbank Offered Rate (LIBOR) is a daily
reported reference rate at which large banks indicate that they
can borrow short-term, wholesale funds from one another on an
unsecured basis.\1\ In order to calculate LIBOR, a ``self-
selected, self-policing committee of the world's largest
banks'' self-report their daily estimated borrowing costs to
the Financial Conduct Authority (FCA), the U.K. financial
regulator.\2\ As of the 4th quarter of 2020, it is estimated
that there are $223 trillion in outstanding exposures to U.S.
Dollar (USD) LIBOR.\3\
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\1\Federal Reserve Bank of New York, LIBOR: Origins, Economics,
Crisis, Scandal, and Reform, (Mar. 2014).
\2\The Guardian, LIBOR Scandal: The Bankers Who Fixed the World's
Most Important Number, (Jan. 2017).
\3\Federal Reserve Bank of New York, Alternative Reference Rates
Committee, Progress Report: The Transition from U.S. Dollar LIBOR,
(Mar. 31, 2021).
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LIBOR's self-reporting structure created opportunities for
individuals or institutions to manipulate or falsify data. In
the wake of the 2008 financial crisis, upon discovering a
widespread culture of LIBOR manipulation built around industry
relationships,\4\ U.S. and U.K. regulators settled with various
banking institutions, including some of the world's largest
banks such as Barclays, JPMorgan Chase, Citigroup, and UBS,
over allegations that these institutions manipulated LIBOR\5\
by pressuring their colleagues to report artificially low or
high interest rates in order to manufacture trading
opportunities.\6\
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\4\The New York Times, Deutsche Bank to Pay $2.5 Billion Fine to
Settle Rate-Rigging Case, (Apr. 23, 2015).
\5\The New York Times, Tracking the LIBOR Scandal, (Mar. 23, 2016).
\6\Council on Foreign Relations, Understanding the LIBOR Scandal,
(Oct. 12, 2016).
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Though its decision was not explicitly linked to the
numerous LIBOR rigging scandals, the FCA announced in 2017 that
it would no longer compel banks to report LIBOR after December
31, 2021, and would discontinue its publication.\7\ However, in
response to the global COVID-19 pandemic, the ICE Benchmark
Administration (IBA) announced that it would not cease
publication of the overnight and 1, 3, 6, and 12 months USD
LIBOR settings until June 30, 2023.\8\
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\7\Lexology, The end of LIBOR--what does that mean for
international banks, (Dec. 12, 2019).
\8\Bloomberg, LIBOR enters `final chapter' as global regulators set
end dates, (Mar. 11, 2021).
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There are currently an estimated $16 trillion in
outstanding loans, securities, and other financial instruments
which reference USD LIBOR and, without intervention, will not
be able to function as originally intended after LIBOR is
discontinued.\9\ These instruments are referred to as ``tough
legacy'' LIBOR. It is widely understood that, without federal
action, the discontinuation of LIBOR will result in widespread
litigation stemming from the absence of fallback language or
other contractual provisions. On October 20, 2021, the Board of
Governors of the Federal Reserve System (Federal Reserve),
Consumer Financial Protection Bureau (CFPB), Federal Deposit
Insurance Corporation (FDIC), National Credit Union
Administration (NCUA) and the Office of the Comptroller of the
Currency (OCC), in conjunction with state bank and credit union
regulators, issued a joint statement underscoring the
importance of continued progress in transitioning away from
LIBOR. The statement warned that ``failure to adequately
prepare for LIBOR's discontinuance could undermine financial
stability and institutions' safety and soundness and create
litigation, operational, and consumer protection risks.''\10\
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\9\Testimony of Michael R. Bright, CEO, Structured Finance
Association, U.S. Senate Committee on Banking, Housing, and Urban
Affairs, (Nov. 2, 2021).
\10\Federal Reserve, CFPB, FDIC, NCUA, OCC, and State Bank and
Credit Union Regulators, Joint Statement on Managing the LIBOR
Transition, (Oct. 20, 2021).
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In annual reports going back to 2012, the Financial
Stability Oversight Council (FSOC) has repeatedly identified
the manipulation and inherent weaknesses of LIBOR as
undermining market integrity, and has increasingly warned about
the market's transition away from LIBOR as a source of systemic
risk.\11\ In 2019, FSOC identified the ``cessation of
degradation of LIBOR'' as having the potential to
``significantly disrupt'' financial markets.\12\ FSOC also
expressed concerns that if market participants fail to
``adequately adapt'' to an alternative reference rate, there
may be a risk to the liquidity and the stability of the
markets.\13\ These are concerns FSOC reaffirmed in its 2020
annual report.\14\ The SEC has similarly warned that LIBOR's
discontinuation may pose significant risks to the markets.\15\
Treasury Secretary Janet Yellen and Chair of the Federal
Reserve Jay Powell have endorsed federal legislation as the
best solution to address the LIBOR transition for ``tough
legacy'' contracts when they appeared before Congress.\16\
Federal Reserve Chair Powell has also said previously that the
secession of LIBOR, without legislation that clearly provides
an alternative benchmark interest rate, presents a ``big
financial stability risk.''\17\ Former Treasury Secretary
Steven Mnuchin also suggested that legislation may be necessary
to address contracts that reference LIBOR and lack appropriate
fallback language.\18\
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\11\FSOC, Annual Reports (accessed Dec. 7, 2021).
\12\FSOC, 2019 Annual Report (Dec. 4, 2019).
\13\Id.
\14\FSOC, 2020 Annual Report (Dec. 3, 2020).
\15\SEC, Staff Statement on LIBOR Transition, (Jul. 12, 2019).
\16\American Banker, Calls intensify for Congress to intervene on
LIBOR, (Mar. 26, 2021).
\17\Risk.net, Fed's Powell: LIBOR Death is `Big Stability Risk',
(Nov. 8, 2017).
\18\American Banker, Congress may need to step in on LIBOR switch,
Mnuchin Warns, (Dec. 5, 2019).
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Following enactment of federal legislation, additional
time-consuming steps are still required to ensure the payments
can be billed and made on time following the cessation of
LIBOR. First, certain components of the law require rulemaking
which, even on the expedited basis provided for in the
legislation, will take six months. Moreover, following the
completion of the rulemaking, paying agents, lenders, servicers
and other service providers need significant time to
operationalize the law and rulemaking, accurately calculate
payments and communicate to borrowers and investors that ensure
successful migration across the countless number of parties
involved. These essential operational steps are estimated to
take 9 to 12 months, given the extensive number of contracts
and parties involved. Lastly, financial markets will look to
have all this settled sufficiently ahead of LIBOR's termination
to avoid market disruptions in trading, liquidity, and
valuations.
In the absence of legislative direction, many trustees and
other third parties responsible for calculating, billing, and
making LIBOR-based payments have already notified the borrowers
and investors of those contracts that they will need to seek
court direction on how those payments should be calculated
without LIBOR. These judicial proceedings can take 12-18
months; and those proceedings must be completed prior to the
June 2023 cessation to ensure the correct payments can be
billed and made on time. The magnitude of potential litigation
costs will place a considerable and unnecessary strain on our
nation's courts and businesses already significantly impacted
by the global pandemic; and the uncertain court outcomes can
undermine financial stability, and risk reducing liquidity and
value of financial contracts including fixed income bonds held
by pension plans and savings accounts.
Scope
This bill is designed to affect only those instruments,
which, according to their terms, would require a calculation
based on LIBOR after it is no longer published. Accordingly, it
does not affect those financial instruments that will expire
before the relevant tenor of LIBOR ceases to be published. Nor
is this bill intended to apply to those instruments and
contracts that clearly specify the rights of the parties and
the calculations to be made in the event that the relevant
LIBOR rate is no longer published, as where an instrument
specifies a backup rate. This bill is designed to supersede all
state, local, tribal, and territorial law.
Taxation
Nothing in this bill is designed to affect the revenue laws
of the United States. Earlier versions of this bill included
provisions stating that the application of the bill and the
adjustment of a benchmark interest rate pursuant to this bill
did not constitute a ``sale or exchange,'' nor did it
constitute ``a transfer, disposition, or conversion of
property.'' It was determined that such provisions were
unnecessary since it under existing tax law the application of
this bill would not constitute a sale or exchange or
disposition of any asset. Furthermore, the inclusion of any
provision simply restating existing tax law would unnecessarily
delay this bill.
Act does not prescribe what interest rates should be used in the future
The sole purpose of this legislation is to provide a
benchmark interest rate for those instruments which currently
use U.S. Dollar LIBOR for those periods of time after LIBOR is
no longer reported. Nothing in this bill is designed to
encourage the future use of any particular benchmark interest
rate, such as SOFR, or to preference SOFR or any other
benchmark interest rate. Accordingly, no federal agency engaged
in the regulation of depository or financial institutions
shall, as a result of this Act, mandate, encourage, require or
give preference to the use of SOFR or any other benchmark
interest rate for use in any contract or instrument created
after the enactment of the bill.
Section-by-Section Analysis
Section 1. Short title
This section establishes the short title of the bill as the
``Adjustable Interest Rate (LIBOR) Act of 2021''
Section 2. Findings & purpose
This section details the reach of LIBOR, the significant
number of existing contracts that do not provide for a
replacement benchmark when LIBOR is discontinued, the potential
of pending litigation for these contracts, and the need to
establish a process to replace LIBOR, to limit disruption,
preclude litigation, and to permit existing contracts to use an
alternative replacement benchmark.
Section 3. Definitions
This section provides various definitions.
Section 4. LIBOR contracts
This section establishes that on the LIBOR replacement
date, the Board of Governors of the Federal Reserve System
(BOG-FRS) selected Benchmark Replacement will replace LIBOR for
contracts that do not provide a clearly defined replacement
rate, that any insufficient Fallback Provision in a LIBOR
Contract will be null and void, a Determining Person may select
the BOG-FRS Replacement Benchmark, that this selection is
irrevocable, but if a selection is not made, the Benchmark
Replacement shall replace LIBOR. If the Benchmark Replacement
does replace LIBOR, the Benchmark Replacement will become part
of the LIBOR contract. Nonetheless, this section does not alter
or impair a LIBOR Contract that specifies a clearly defined and
available replacement rate.
Section 5. Continuity of contract and safe harbor
This section clarifies that a BOG-FRS Benchmark Replacement
for LIBOR is a commercially reasonable replacement, reasonable
and comparable to LIBOR, and is substantial performance for a
person benefitting or burdened by a LIBOR Contract. The
replacement of LIBOR does not impair or affect a person's right
to receive payment, discharge performance, unilaterally
terminate, constitute a breach of contract, or void the LIBOR
contract, and the use of BOG-FRA Benchmark Replacement will not
amend or modify the LIBOR Contract. And, nothing in this
section creates a negative inference for a non-BOG-FRS selected
Benchmark Replacement.
Section 6. Preemption
This section permits the bill to preempt all federal and
state laws, rules, and regulations for the selection of a
benchmark replacement or how interest is calculated.
Section 7. Trust Indenture Act of 1939
This section amends section 316 of the Trust Indenture Act
of 1939 by ensuring that the right of any bond holder of an
indenture security to receive payment of principal or interest
will not be impaired by LIBOR replacement.
Section 8. Rulemaking
This section requires the BOG-FRS to issue regulations to
administer and carry out this Act.
Section 9. Interbank offered rate transition rule of construction
This section affirms that the selection or use of a BOG-FRS
Benchmark Replacement and the implementation of conforming
changes does not constitute a transfer, disposition, or
conversion of property.
Hearings
For the purposes of section 3(c)(6) of House Rule XIII, the
Committee on Financial Services' Subcommittee on Investor
Protection, Entrepreneurship, and Capital Markets on April 15,
2021 held a hearing to consider H.R. 4616 entitled, ``The End
of LIBOR: Transitioning to an Alternative Interest Rate
Calculation for Mortgages, Student Loans, Business Borrowing
and other Financial Products.''
Committee Consideration
The Committee on Financial Services met in open session on
July 29, 2021, and ordered H.R. 4616 to be reported favorably
to the House with an amendment in the nature of a substitute by
a voice vote.
Committee Votes and Roll Call Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that no
recorded votes occurred during consideration of H.R. 4616 and
that the committee ordered H.R. 4616 to be reported favorably
by a voice vote. In addition, an amendment in the nature of a
substitute, offered by Mr. Sherman was agreed to by a voice
vote. An amendment to the amendment in the nature of a
substitute, offered by Mr. Sherman, was agreed to by a voice
vote.
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Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 4616 would be to
establish a process for certain financial contracts that
reference LIBOR and do not contain sufficient language that
would allow them to continue to function as originally intended
after LIBOR is discontinued on December 31, 2021 while the
Overnight and 1-, 3-, 6- and 12-Month USD LIBOR publication
will cease on June 30, 2023, to instead reference SOFR or an
appropriately adjusted form of SOFR without the need to be
amended or subject to litigation. The bill directs the Federal
Reserve Board to issue regulations regarding the appropriate
SOFR or adjusted SOFR replacement reference interest rate that
should be used for specific categories of LIBOR-based contracts
that fall within the scope of the legislation.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has requested but not yet received an
estimate from the Director of the Congressional Budget Office.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 4616. After
careful review, including consultation with the Congressional
Budget Office, the Committee estimates that H.R. 4616 would not
have a significant impact on spending.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee
does not believe H.R. 4616 contains any unfunded mandates and
adopts as its own any future estimate of federal mandates
regarding H.R. 4616 as amended, as prepared by the Director of
the Congressional Budget Office.
Advisory Committee
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1, H.R. 4616, as amended,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 4616 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 4616 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Changes to Existing Law
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 4616, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
TRUST INDENTURE ACT OF 1939
* * * * * * *
TITLE III--SHORT TITLE
* * * * * * *
directions and waivers by bondholders; prohibition of impairment of
holder's right to payment
Sec. 316. (a) The indenture to be qualified--
(1) shall automatically be deemed (unless it is
expressly provided therein that any such provision is
excluded) to contain provisions authorizing the holders
of not less than a majority in principal amount of the
indenture securities or if expressly specified in such
indenture, of any series of securities at the time
outstanding (A) to direct the time, method, and place
of conducting any proceeding for any remedy available
to such trustee, or exercising any trust or power
conferred upon such trustee, under such indenture, or
(B) on behalf of the holders of all such indenture
securities, to consent to the waiver of any past
default and its consequences; or
(2) may contain provisions authorizing the holders of
not less than 75 per centum in principal amount of the
indenture securities or if expressly specified in such
indenture, of any series of securities at the time
outstanding to consent on behalf of the holders of all
such indenture securities to the postponement of any
interest payment for a period not exceeding three years
from its due date.
For the purposes of this subsection and paragraph (3) of
subsection (d) of section 315, in determining whether the
holders of the required principal amount of indenture
securities have concurred in any such direction or consent,
indenture securities owned by any obligor upon the indenture
securities, or by any person directly or indirectly controlling
or controlled by or under direct or indirect common control
with any such obligor, shall be disregarded, except that for
the purposes of determining whether the indenture trustee shall
be protected in relying on any such direction or consent, only
indenture securities which such trustee knows are so owned
shall be so disregarded.
(b) Notwithstanding any other provision of the indenture to
be qualified, the right of any holder of any indenture security
to receive payment of the principal of and interest on such
indenture security, on or after the respective due dates
expressed in such indenture security, or to institute suit for
the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of
such holder, except as to a postponement of an interest payment
consented to as provided in paragraph (2) of subsection (a),
[and] except that such indenture may contain provisions
limiting or denying the right of any such holder to institute
any such suit, if and to the extent that the institution or
prosecution thereof or the entry of judgment therein would,
under applicable law, result in the surrender, impairment,
waiver, or loss of the lien of such indenture upon any property
subject to such lien, 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.
(c) The obligor upon any indenture qualified under this title
may set a record date for purposes of determining the identity
of indenture security holders entitled to vote or consent to
any action by vote or consent authorized or permitted by
subsection (a) of this section. Unless the indenture provides
otherwise, such record date shall be the later of 30 days prior
to the first solicitation of such consent or the date of the
most recent list of holders furnished to the trustee pursuant
to section 312 of this title prior to such solicitation.
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