Summary of the LIBOR Act and LIBOR Regulations. As the purpose of the LIBOR Act is to establish a clear and uniform process for addressing legacy contracts, the LIBOR Act and LIBOR Regulations only apply to contracts that (1) are governed by U.S. law or the laws of any U.S. state, (2) reference the overnight or one-, three-, six-, or 12-month tenors of USD LIBOR, and (3) do not have fallback provisions that provide for a clearly defined and practicable replacement benchmark for LIBOR, unless the parties to the contract agree in writing that the LIBOR Act does not apply. In addition, certain protective provisions of the LIBOR Act and LIBOR Regulations would also apply to a contract where the “determining person” elects to use the “Board-selected benchmark replacement” (as such terms are further described below). Generally speaking, contracts that fall within the scope of the LIBOR Act are affected by the LIBOR Act as follows: On the LIBOR replacement date (i.e., the first London banking day after June 30, 2023, assuming no further delays), all references to LIBOR in the subject contract will be replaced with the corresponding Board-selected benchmark replacement. The LIBOR Act and implementing regulations also permit “benchmark replacement conforming changes” for non-consumer loans, provide a safe harbor for contracts subject to the LIBOR Act, and preempt conflicting state or local laws. Other provisions of the LIBOR Act amend the Trust Indenture Act of 1939 (15 USC 77ppp(b)) and the Higher Education Act of 1965 (20 USC 1087-1(b)(2)(I)); however, a discussion of those provisions is beyond the scope of this article. What This Means for Your Bank A. Does the LIBOR Act apply to my contract? Contract Category Result LIBOR contracts that contain fallback provisions identifying a specific benchmark replacement that is not based in any way on USD LIBOR values (except to account for differences between LIBOR and the replacement, e.g., the spread) and do not require any person (other than a benchmark administrator) to conduct any poll, survey, or inquiries for quotes or information concerning interbank or lending rates. The LIBOR Act does not apply to these contracts, even if the fallback provisions lack an express non-representativeness trigger. These LIBOR contracts can generally be expected to transition to the contractually-agreed upon replacement benchmark per the contract terms. For these contracts, review the LIBOR fallback provisions closely and comply with all notice requirements. LIBOR contracts that do not contain any fallback provisions and do not identify a determining person (or that only identify a benchmark replacement based on LIBOR or require a person — other than a benchmark administrator — to conduct any poll, survey, or inquiries for quotes or information concerning interbank or lending rates). The LIBOR Act applies to these contracts. Any references to USD LIBOR in these contracts will, by operation of law, be replaced by the Board-selected benchmark replacement on the LIBOR replacement date. For these contracts, you do not need to send notice to the borrowers. On the LIBOR replacement date, all references to LIBOR will change to the corresponding Board-selected benchmark replacement as a matter of law. LIBOR contracts containing fallback provisions authorizing a “determining person” to determine benchmark replacement. The LIBOR Regulations expanded on the definition of “determining person” as set forth in the LIBOR Act to mean “any person with the sole authority, right, or obligation, including on a temporary basis (as identified by the LIBOR contract or by the governing law of the LIBOR contract, as appropriate) to determine a benchmark replacement, whether or not the person’s authority, right, or obligation is subject to any contingencies specified in the LIBOR contract or by the governing law of the LIBOR contract.” The LIBOR Act may apply to these contracts, depending on the actions/ inactions of the determining person. • The LIBOR Act will not apply to these contracts so long as the determining person selects a benchmark replacement by the earlier of the LIBOR replacement date or the latest date for selecting a benchmark replacement per the terms of the contract. • If the determining person does not do so, then the LIBOR Act will apply and any references to USD LIBOR in these contracts will, by operation of law, be replaced by the Board-selected benchmark replacement on the LIBOR replacement date. The determining person is not required to select the Board-selected benchmark replacement as the successor index to LIBOR in the contract. However, if they do, then the determining person will benefit from certain statutory protections (safe harbors) set forth in the LIBOR Act. Colorado Banker 18
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