§5803 LIBOR contracts

Summary

On the LIBOR replacement date, the rate the Board picks becomes the new benchmark for many LIBOR contracts. That happens when a contract has no fallback rules or its fallback does not name a specific replacement rate or a person to pick one. Any fallback that points to a rate based on LIBOR (except to fix the small difference) or that asks someone other than a benchmark administrator to poll banks will not apply on that date. If a contract lets a “determining person” choose the replacement, that person may pick the Board’s rate, and that choice is final, must be made by the earlier of the LIBOR replacement date or the contract’s last allowed selection date, and will be used for all calculations on and after the LIBOR replacement date. If no one picks a rate in time, the Board’s rate becomes the replacement. When the Board’s rate becomes the replacement, small contract changes needed to use it automatically become part of the contract, and the person who calculates rates does not need anyone’s permission to make those changes. The Board will add a tenor spread adjustment to its chosen rate for each category of contract it identifies. For consumer loans, during the 1-year period beginning on the LIBOR replacement date the Board will add an amount that moves in a straight line from the initial difference between the new rate and the old LIBOR tenor to the final tenor spread adjustment; after that 1-year period the final adjustment applies. The chapter does not change contracts that expressly opt out, contracts that already name a replacement not based on LIBOR (except as noted above), contracts where the determining person declines the Board rate, application of caps or floors or other modifiers, or certain federal consumer-notice and credit-card rules and other federal consumer-law rights and duties. Key terms: Board-selected benchmark replacement — the rate the Board chooses; LIBOR replacement date — the date LIBOR is replaced; determining person — the contract’s chooser of a new rate; calculating person — the person who figures payments; tenor spread adjustment — the adjustment to match different rate tenors.