ABA Supports Libor ‘Tough Legacy’ Contract Act

The American Bankers Association and a coalition of financial trade groups wrote in support today of the Adjustable Interest Rate (Libor) Act to address “tough legacy” contracts that currently reference Libor but lack adequate fallback language and can’t be amended to add it. The bill is being considered by the House Financial Services Committee this week.

In a letter to committee leaders, the groups wrote that as all tenors of U.S. dollar Libor will cease to be published in June 2023, there is currently no realistic ability to amend a group of hard-to-modify financial contracts that use Libor. They noted that the legislation provides a solution for those contracts with insufficient fallback language, is limited in scope, ensures that there is no interference with contracts that can be amended, offers uniform treatment and creates a safe harbor from litigation.

“We certainly do not take lightly the amending of contracts; however, in this unique, once-in-a lifetime financial event we find no other feasible option for remediation of these contracts without the risk of significant contractual uncertainty,” the groups wrote.