ABA, Trade Groups Call for Legislation to Address ‘Tough Legacy’ Contracts

With several tenors of Libor scheduled to sunset at the end of the year and the remainder in June 2023, the American Bankers Association and a group of financial trade organizations urged lawmakers to advance legislation to address “tough legacy” contracts—those that do not have appropriate contractual fallback language to facilitate the transition to an alternative reference rate.

Specifically, they expressed support for a legislative effort by Sens. Jon Tester (D-Mont.) and Thom Tillis (R-N.C.) that would provide a solution for tough legacy contracts while limiting the scope of the legislation so that it does not interfere with contracts that have affective fallback provisions. The legislation—which would be a companion to a House bill introduced by Rep. Brad Sherman (D-Calif.)—would allow parties to opt-out, and would not affect contracts related to new or future businesses. It would also offer uniform treatment for all U.S. contracts that fall under the federal legislation and create a safe harbor from litigation.

“Without federal legislation to address these contracts, investors, consumers and issuers of securities may face years of uncertainty, litigation and a change in value, creating ambiguity that would lead to a reduction in liquidity and an increase in volatility,” the groups noted. “We thank Senator Tester, Senator Tillis, and the [Banking] Committee for working towards a meaningful solution that offers fair, equitable and consistent treatment for all tough legacy contracts in support of the Libor transition.”