New York’s Legacy LIBOR Legislation: A User’s Guide to Fall Back On

Introduction

On April 6, 2021, New York’s Governor signed into law the state’s long-awaited legislation to address certain contracts, securities and instruments (which we will refer to as “contracts”) that:

• are governed by New York;
• have interest rates or dividend rates determined by reference to U.S. dollar LIBOR; and
• have no “fallback” rate provisions or have “fallback” rate provisions that basically won’t work once U.S. dollar LIBOR is discontinued, which is expected by June 2023.

Such a contract has a “benchmark replacement” problem because its rate may continue to be expressed in terms of assumed floating values of LIBOR (which will no longer be available) or because its rate may be expressed in terms of the last known value of LIBOR (a “frozen LIBOR” provision). In any such case, the legislation is based on the theory that the contract will no longer make economic sense because the benchmark replacement either won’t work or will result in a “fixed” LIBOR that was not intended when the contract was entered into.

Normally, parties may be able to amend contracts that are legally frustrated or that no longer make economic sense, but there are contracts for which that may not be true because of holdouts (parties for whom the broken provisions provide a windfall) or the difficulty of locating and motivating parties whose consent is needed (a scenario familiar to everyone who receives repeated calls from a proxy solicitor).

That is where the legislation steps in. The legislation takes effect immediately.

The legislation provides for, among other things, two basic fixes for these tough legacy contracts:

• automatic replacement of LIBOR by the “recommended benchmark replacement,” which is expected to be based on the Secured Overnight Financing Rate (“SOFR”); and
• for a contract that has a “determining person” (a trustee, a calculation agent or the like, as discussed below), replacement of LIBOR by the recommended benchmark replacement, as selected by the determining person.

Contracts that fall back to the prime rate or another non-LIBOR index as a replacement rate are not subject to the legislation’s replacement provisions.

The official text of the legislation is available on the New York State Senate website (available here). Because the official text can be hard to read, we have prepared a reformatted version as Appendix A (available here). Only the official version may be relied on.

This Sidley Update summarizes key aspects of the legislation. However, any question regarding the legislation’s eventual application will need to be addressed by application of the actual legislation to the facts.

A proposed federal version of the legislation remains under consideration in Congress. Before passage by the New York legislature, the New York legislation was modified in various respects to conform to a version of the federal proposal.

Any federal legislation could preempt the New York legislation in whole or in part.

Scope and Other General Matters

The legislation will apply to any “contract, security or instrument” governed by New York law that uses “U.S. dollar LIBOR.” For simplicity, we will use the term “LIBOR.”¹ While many think of indentures as the type of tough legacy contracts contemplated by the legislation, the term “contract, security or instrument” is defined broadly and includes, for example, “mortgages” as well as other debt and equity instruments and obligations. As stated above, for simplicity, we will use “contract” to refer to any such contract, security or instrument.

The legislation is in form a new Article 18-C of the New York General Obligations Law (see Section 1). Section 18-401(6) indicates that as to scope, Article 18-C overrides the New York Uniform Commercial Code and other New York laws. The legislation was proposed by the Alternative Reference Rates Committee (the “ARRC”), a group of private-market participants convened by certain U.S. banking and financial markets regulators to guide the transition from LIBOR to a more robust replacement reference rate. SOFR will be the basis for the ARRC’s recommended alternative to LIBOR for use in derivatives and other financial contracts.

The legislation’s effect on commercial loan agreements is expected to be limited. As a practical matter, most commercial loans are easier to amend than, for example, bond indentures, and most already include workable fallback provisions (even if only to the prime rate). Moreover, since 2017, loans have been drafted to include a range modern fallback provisions that contemplate the permanent disappearance of LIBOR and its replacement by a recommended benchmark replacement.

Similarly, the legislation is expected to have a limited effect on swap transactions and other derivatives governed by ISDA master agreements. That is because transacting parties are likely to adhere to the LIBOR protocol recently published by ISDA that adds appropriate fallback provisions to such agreements,² or they may take similar bilateral action.

However, many contracts have no fallbacks or fallback provisions that were drafted on the assumption that LIBOR would never disappear permanently. The ARRC recently reported that after June 2023, “[a]n estimated $1.9 trillion in exposures will remain in bonds and securitizations, many of which may have no effective means to transition away from LIBOR upon its cessation.”³

The legislation is often referred to as addressing potential problems under “legacy contracts” that were entered into years ago. However, as a technical matter, nothing in the legislation would prevent its application to a new contract that lacks modern fallback provisions.

The legislation will affect contracts differently, depending on (i) whether they have fallback provisions saying what happens after the disappearance of LIBOR and (ii) the nature of the fallback provisions.

Contracts That Are Automatically Changed by the Legislation Because They Have No Fallback Provisions or They Have Fallbacks to LIBOR (Sections 18-401(1) and (2))—“Automatically Changed Contracts”

Section 18-401(1) applies to a contract if:

a. it has no fallback provisions (there is no replacement for LIBOR, or no process to replace it, if LIBOR doesn’t exist); or

b. it has fallback provisions that result in a benchmark replace¬ment, other than an ARRC-recommended replacement, that is based in any way on any LIBOR value (such frozen LIBOR—the last LIBOR generated by the deal contract).

In either such case, the legislation will, by operation of law, automatically cause an ARRC-determined replacement rate to replace LIBOR. The replacement will occur on the “LIBOR replacement date,” which we discuss below.

The ARRC-determined replacement rate for each tenor will be some form of SOFR plus a spread adjustment for such tenor. The ARRC has stated that “its recommended spread adjustments for fallback language in non-consumer cash products will be the same as the spread adjustments applicable to fallbacks in ISDA’s documentation for USD LIBOR.”⁴ The International Swaps and Derivatives Association (“ISDA”) spread adjustments were established on March 5, 2021, in response to announcements made on that date by the UK Financial Conduct Authority (“FCA”) and the Intercontinental Exchange (ICE) Benchmark Administration (“IBA”) regarding when LIBOR will cease to be published or will become non-representative. ⁵ 

A related provision, Section 18-401(2), nullifies fallback provisions in contracts that provide for polls, surveys, or inquiries for interbank lending rates; that provision takes effect once a LIBOR discontinuance event has happened (which, as discussed below, has already happened, because of the March 5 announcements by the FCA and IBA). It is intended to nullify the kind of fallback that moves rates from “screen” LIBOR to, in effect, a quasi-LIBOR replacement based on direct quotes from reference banks. The provision is needed because the definition of LIBOR in the legislation is limited to “screen” LIBOR as administered by the current LIBOR administrator (or its predecessor or successor). A poll of reference banks for London U.S. dollar rates may mimic LIBOR, but it isn’t “LIBOR” for purposes of the legislation. Thus, if polling and similar provisions were not nullified, a contract with such provisions would not qualify under Section 18-401(1) because:

• it would have a fallback (so the contract wouldn’t qualify under clause a. of Section 18-401(1)); and
• the fallback wouldn’t “result in a benchmark replace¬ment, other than a ARRC-recommended replacement, that is based in any way on any LIBOR value” because the replacement would be quasi-LIBOR (so the contract wouldn’t qualify under clause b. of Section 18-401(1)).

So, before a contract is evaluated under Section 18-401(1), it appears that it should first be evaluated under Section 18-401(2) (and any resulting nullification taken in to account), although Section 18-401(1) doesn’t say that must happen first.

Moreover, Section 18-401(5)(b) provides that nullification will also apply to contracts that fall back to rates that are not LIBOR-based (such as the prime rate) and thus would not be subject to Section 18-401(1). In such contracts, the fallback provisions will stand, but any part of a provision calling for polls, surveys, or inquiries for interbank lending rates will have no effect (so, for example, a replacement waterfall would lead straight to the prime rate without consideration of an earlier step based on a problematic polling provision).

Replacements under Section 18-401(1) won’t likely occur until June 30, 2023. The timing will be determined by the legislation’s definition of “LIBOR replacement date” (see Section 18-400(3)). That date is expected to be June 30, 2023, based on the March 5 announcements by the FCA and IBA. As discussed below, those March 5 announcements triggered a “LIBOR discontinuance event” (see Section 18-400(2)); however, they did not trigger a “LIBOR replacement date.”

The point of all this, where there is no functional benchmark replacement provision in a contract, is to force an automatic change to the ARRC-determined replacement rate without the contractual obstacles to amendment (in particular, consent requirements) that would normally apply to changes in economic deal terms.

We will refer to contracts that are subject to Section 18-401(1) (after application of Section 18-401(2)) as “Automatically Changed Contracts.”

Contracts That Will Not Be Changed by the Legislation (Section 18-401(5))—“Unchanged Contracts”

Section 18-401(5) provides that certain contracts will not be altered or impaired by the legislation.

Such contracts include any contract that “contains fallback provisions that would result in a benchmark replacement that is not based on LIBOR, including, but not limited to, the prime rate or the federal funds rate, except that such contract ... shall be subject to [Section 18-401(2), nullifying bank polls, etc.].”

Thus, if the contract’s fallback provisions fall back to, for example, the prime rate (presumably with a different negotiated spread from the spread to deal LIBOR), the legislation will not change that outcome. The idea is that the parties had originally negotiated a workable non-LIBOR economic substitute for the life of the deal, unlike the parties to Section 18-401(1) contracts.

We will refer to contracts that are subject to Section 18-401(5) as “Unchanged Contracts.”

Contracts That May Be Changed by a “Determining Person” Pursuant to Authority Granted by the Legislation (Section 18-401(3))—“Determining Person-Changed Contracts”

Section 18-401(3) gives the “determining persons” (the definition of which is discussed below) of certain contracts (but not all) the authority, but not the obligation, to select the ARRC-determined replacement rate as the LIBOR replacement. And, as discussed below, it confers that authority once a LIBOR discontinuance event has occurred (which it has already, as described below), although that authority won’t be useful until the ARRC recommends specific LIBOR benchmark replacements for particular contracts (which it hasn’t). This enables a contract to be fixed early (if it qualifies, as described below).

A determining person may exercise such authority if the contract’s fallback provisions permit or require the selection of a benchmark replacement that is:

a. based in any way on any LIBOR value; or

b. “the substantive equivalent” of a benchmark replacement that is: (i) a commercially reasonable replacement for and a commercially substantial equivalent to LIBOR; (ii) a reasonable, comparable or analogous term for LIBOR under or in respect of such contract; or (iii) a replacement that is based on a methodology or information that is similar or comparable to LIBOR.⁶

We will refer to such contracts as “Determining Person-Changed Contracts.”⁷

It seems likely that Determining Person-Changed Contracts were primarily intended to be contracts that have fallback provisions that give one party to the contract—a “determining person”—authority to choose a replacement rate for LIBOR without limiting the party’s discretion except in general terms (for example, the “substantial equivalent” standard of clause b.). An oversimplified example would be a contract that provides that (i) the interest rate is LIBOR, but (ii) if LIBOR cannot be obtained, the rate is what the calculation agent determines to be a commercially reasonable replacement for LIBOR. That would be a Determining Person-Changed Contract.

Section 18-401(3) provides that the determining person may act on or after the occurrence of a LIBOR discontinuance event. Thus, it will permit a determining person to select an ARRC-determined replacement for a Determining Person-Changed Contract before the LIBOR replacement date (i.e., before June 30, 2023).

It appears that the FCA and IBA announcements described above qualify as a LIBOR discontinuance event. That is based, in part, on the ARRC’s published opinion stating those announcements constituted a “benchmark transition event” for purposes of its LIBOR fallback recommendations.⁸ The legislation’s definition of “LIBOR discontinuance event” is based on the ARRC’s definition of “benchmark transition event.”⁹ Accordingly, once the ARRC makes specific LIBOR replacement recommendations, determining persons should be in position to select recommended replacements for Determining Person-Changed Contracts (without waiting until June 2023).

Section 18-401(3), unlike Sections 18-401(1) and (2), isn’t self-executing; it requires action to be taken by a “determining person.” The definition of “determining person” is broad and includes any “any person with the authority, right or obli¬gation to ... calculate or determine a valuation, payment or other measurement based on a benchmark” (as well as any person expressly authorized “to determine the benchmark replacement that will take effect on the LIBOR replacement date” or “to notify other persons of the occurrence of a LIBOR discontinuance event, a LIBOR replacement date or a benchmark replacement”).

Because of the breadth of the definition, administrative agents, trustees, calculation agents and the like are the kinds of institutions that may be determining persons. However, the defined term applies a waterfall to the transaction parties in determining which is a contract’s determining person. The waterfall will result in the designation of certain transaction parties as a contract’s determining person before others are.

Section 18-401(3) is not a provision that authorizes parties to “fill in the gaps” to supplement the automatic replacement mechanism of Section 18-401(1). Other provisions of the legislation address “benchmark replacement conforming changes,” as described below.

Benchmark Replacement Conforming Changes (Sections 18-400(9) and 18-401(4))

The legislation defines the term “benchmark replacement conforming changes” (in Section 18-400(9)) and helps facilitate them—for Automatically Changed Contracts and Determining Person-Changed Contracts.

Definition of “Benchmark Replacement Conforming Changes”—Giving Effect to Our Slight Hypothetical Rewrite

Benchmark replacement conforming changes are defined in Section 18-400(9) as “any technical, adminis¬trative or operational changes, alterations or modifications that are associated with and reasonably necessary to the use, adoption, calcu¬lation or implementation of” a benchmark replacement recommended by a relevant recommending body (such as the ARRC) with respect to a contract, but only if certain conditions are satisfied. The conditions refer to:

a. the selection or recommendation of the change, alteration, or modification (we will use “change” for simplicity) by a relevant recommending body; and

b. the need to vary the changes resulting from clause a. (including to fill in gaps), subject to a market and contract consistency condition and a tax condition.

The actual text of the definition has a syntax issue.¹⁰ Set forth below is a hypothetical rewrite of the definition, marked to indicate small adjustments that we made to the text to avoid the syntax issues and to reflect what we believe is meant (and using our shorthand “contract” without marking):

“Benchmark replacement conforming changes” shall mean, with respect to any type of contract, any technical, administrative or operational changes, alterations or modifications that are associated with and reasonably necessary to the use, adoption, calculation or implementation of a recommended benchmark replacement and that: a. have been selected or recommended by a relevant recommending body.; and

b.In addition, if, in the reasonable judgment of the calculating person, the benchmark replacement conforming changes selected or recommended pursuant to the preceding paragraph a of this subdivision do not apply to such contract or are insufficient to permit administration and calculation of the recommended benchmark replacement, then benchmark replacement conforming changes shall [also] include such other changes, alterations or modifications that, in the reasonable judgment of the calculating person:

(i) are necessary to permit administration and calculation of the recommended benchmark replacement under or in respect of such contract in a manner consistent with market practice for substantially similar contracts and, to the extent practicable, the manner in which such contract was administered immediately prior to the LIBOR replacement; and

(ii) would not result in a disposition of such contract for U.S. federal income tax purposes. ¹¹

Thus, there are basically two categories of benchmark replacement conforming changes:

• The first category is those that have been selected or recommended by a relevant recommending body. An example would be the selection or recommendation by ARRC of a SOFR determination date mechanism to implement SOFR as a recommended benchmark replacement for a particular kind of contract. The mechanism could, for example, establish the length and operation of interest accrual periods and lookback periods.
• The second category is those that haven’t been selected or recommended by a relevant recommending body but as to which the “calculating person” (different from the determining person; please see below) exercises its “reasonable judgment.” The judgment has to be that the selected or recommended changes “do not apply” to the contract or “are insufficient to permit administration and calculation of the recommended benchmark replacement.”
  • Intuitively, the “do not apply” condition makes sense, although coming up with a realistic example isn’t easy. Perhaps there could be a simple mismatch, if the relevant recommending body recommends a change that focuses on the notification of “lenders” or “investors” as to the resetting of an interest rate, which would not match the nomenclature of a commercial contract with other kinds of contracting parties. The point here is that the principles of the recommendation could be applied by analogy, if not literally.
  • The “are insufficient” condition is easier to understand. There could be details beyond those selected or recommended by the relevant recommending body, so the gaps need to be filled in.
• If the second category requirement, related to “reasonable judgment,” applies (i.e., the second paragraph in our hypothetical rewrite), and only in that case, two conditions need to be satisfied: (i) necessity and consistency with market practice and, to the extent practicable, how it was administered before the LIBOR cessation; and (ii) no taxable disposition (which could lead to taxable gain or loss).
  • In condition (i), “necessary” provides less flexibility than the customary “necessary or advisable” standard, but the standard may reflect the fact that institutions that are “calculating persons” don’t want to exercise too much discretion.
  • Also in condition (i), we suspect that it may be difficult for a calculating person that is a first mover (or even just an early mover) to be confident about “market practice” if it is making the first (or an early) change. However, market participants may be able to conclude that the condition can be satisfied if the calculating person has reasonable confidence that others would follow (or maybe could follow or are expected to soon follow) with similar changes. The “market practice” condition doesn’t have the “to the extent practicable” mitigant that the “administered during the days of LIBOR” condition does.

Definition of “Calculating Person”

The “calculating person” for a contract may be the “determining person” for a contract, but it need not be. “Calculating person” is defined as “with respect to any contract, security or instrument, any person (which may be the determining person) responsible for calculating or determining any valuation, payment or other measurement based on a benchmark.”

Although the calculating person for a contract may also be the contract’s determining person, the legislation assigns different responsibilities to the two roles. Determining persons receive authority under Section 18-401(3) to select ARRC-recommended replacement rates for Determining Person-Changed Contracts. Calculating persons are given the responsibilities described above related to benchmark replacement conforming changes.

Benchmark Replacement Conforming Changes Made “by Operation of Law”

Section 18-401(4) provides that certain benchmark replacement conforming changes will become part of certain contracts “by operation of law.” (Of course, the changes need to be, as discussed above, recommended by a relevant governing body or determined by a calculating person before that happens.)

The section applies if an ARRC-recommended replacement becomes the benchmark for a contract pursuant to Section 18-401(1) (for an Automatically Changed Contract) or Section 18-401(3) (for a Determining Person-Changed Contract). In such cases, “all benchmark replacement conforming changes that are applicable (in accordance with the definition of benchmark replacement conforming changes) to such recommended benchmark replacement shall become an integral part of such [contract] by operation of law.”

Section 18-401(4) appears, in effect, to give calculating persons the authority to make benchmark replacement conforming changes without engaging in typical consent processes. Because the definition of benchmark replacement conforming changes is not limited to conforming changes that are actually recommended by the ARRC, the authority of calculating persons will be bounded principally by the “reasonable judgment” standard set forth in the definition of benchmark replacement conforming changes, as described above—as well as by the willingness of calculating persons to exercise that judgment.

How could that authority be exercised in practice if, for example, the calculating person is dealing with a Determining Person-Changed Contract that had been changed pursuant to Section 18-401(3)? The conforming changes recommended by ARRC, as contemplated by prong a. of the condition set forth in the definition of benchmark replacement conforming changes, would be effected automatically pursuant to Section 18-401(4). But that might not be enough.

Suppose that the calculating person needs seven conforming changes to make the contract work with the ARRC-recommended rate, but the ARRC recommended only six of them. For example, suppose there is some detail that needs to be addressed under the contract—perhaps a notice period, a rate determination date, or a form of notice to investors—and suppose the ARRC’s recommendation didn’t get to that level of detail.

In that case, Section 18-401(4) would also effect the seventh change automatically (“by operation of law”) if the calculating person for the contract, exercising “reasonable judgment,” determines that the seventh change satisfies the “necessary” standard and conditions (i) and (ii) of clause b. of the definition of benchmark replacement conforming changes (or, in our rewrite above, the second paragraph of the definition).

Similar conforming change questions may arise in connection with an Automatically Changed Contract under Section 18-401(1). The automatic changes effected by Section 18-401(1) may not include all the conforming changes required to make the Automatically Changed Contract work. In that case, a calculating person for the Automatically Changed Contract may decide to follow a path that is similar to the path described above with respect to calculating persons operating pursuant to Section 18-401(3).

Advance Blessings and Other Protections for Contract Parties (Section 18-402)

Section 18-402 has provisions that are intended to limit the disruption of the LIBOR cessation by providing advance blessings of certain actions taken under, or as contemplated by, the legislation.

• No amendment or prejudice. Section 18-402(4) provides that “[t]he selection or use of a recommended benchmark replacement or the determination, implementation, or performance of benchmark replacement conforming changes, by operation of section 18-401 of this article, shall be deemed to: (a) not be an amendment or modification of any [contract]; and (b) not prejudice, impair or affect any person's rights, interests or obligations under or in respect of any [contract].” Section 18-402(4) appears to relate, at least in part, to concerns about consent issues generally and related issues under the Trust Indenture Act of 1939 (the “TIA”). We do not address the TIA issues here because they would relate only to contracts that are indentures for public debt securities and because there may be some issues of coordination between that federal statute and this state legislation.¹²
• Commercial reasonability. Section 18-402(1)(a) provides that “the selection or use of a recommended benchmark replacement as a benchmark replacement ... by operation of section 18-401 of this article shall constitute ... a commercially reasonable substitute for and a commercially substantial equivalent to LIBOR.”
• No breach or rights to terminate. Section 18-402(2) provides that “the selection or use of a recommended benchmark replacement as a benchmark replacement or ... the determination, implementation or performance of benchmark replacement conforming changes, in each case, by operation of section 18-401” will not have certain specified adverse effects (e.g., will not constitute a breach of contract or give any party a right to terminate a contract).
• Exculpation. Section 18-402(3) provides contract parties broad protections from liability in connection with “the selection or use of a recommended benchmark replacement or the determination, implementation or performance of benchmark replacement conforming changes, in each case, by operation of section 18-401.”

Execution Considerations

It is not clear how determining persons and calculating persons will take and formalize the following actions taken pursuant to the legislation:

• selections by determining persons of ARRC-recommended replacement rates pursuant to Section 18-401(3); and
• determinations by calculating persons of benchmark replacement conforming changes pursuant to the definition thereof set forth in Section 18-400(9).

For example, it is not clear what determining persons and calculating persons will require as support for their actions, including possible factual certifications, opinions, and indemnities. And it remains to be seen what form of documentation will be used, particularly in light of Section 18-402(4), which, as discussed above, provides that the selection or use of a recommended benchmark replacement or the determination, implementation, or performance of benchmark replacement conforming changes, will be deemed not to be an amendment or modification of any contract. For example, even if investor consent isn’t needed because of Section 18-401(4), it still may be advisable to obtain the issuer’s signature on appropriate documentation even though a formal amendment is not required (because of the advance blessings described above).

Other Uncertainties

The legislation helpfully addresses transition issues for tough legacy contracts by ensuring that a “recommended benchmark replacement,” based on SOFR, will become the “benchmark replacement” by operation of law in such contracts or, in some cases, by action of determining persons or calculating persons.

However, it does not provide complete certainty as to the future benchmark’s terms. As discussed above, each recommended benchmark replacement will designate a form of SOFR selected or recommended by a “relevant recommending body” (such as the ARRC) and also any “recommended spread adjustment” and any “benchmark replacement conforming changes.” As discussed above, the ARRC has indicated that it will follow ISDA in selecting recommended spread adjustments. However, unknowns include (i) what variant of SOFR will be used in the contract (e.g., daily simple SOFR, compounded SOFR, and term SOFR (if available)), (ii) which conventions will apply to interest computations (e.g., payment period tenors, lookback periods, and compounding-specific conventions) and (iii) which other changes will need to be made to a contract to give effect to the new rate.

Presumably, the ARRC (or another “relevant recommending body”) will publish additional guidance in order to fill in these blanks, even if determining persons are willing to take some actions in that regard as described above. 

¹ LIBOR is quoted in five currencies (U.S. dollars, Euros, Pounds Sterling, Swiss Francs and Japanese Yen) and in seven tenors for each currency. The transition away from non-U.S. dollar LIBOR is outside the scope of the legislation and this summary.

² See ISDA 2020 IBOR Fallback Protocol, available here.

³ ARRC, Progress Report: The Transition from U.S. Dollar LIBOR (March 31, 2021) at 3 note 1, available here.

⁴ See ARRC, ARRC Commends Decisions Outlining the Definitive Endgame for LIBOR: LIBOR’s Regulator and its Administrator Confirm when LIBOR Panels will Cease; ISDA Announces Setting of Spread Adjustments (March 5, 2021), available here.

⁵ The spread adjustments, for all currencies and tenors of LIBOR, are available here. ISDA published a related statement regarding the FCA announcement and the spread adjustments, available here.

⁶ Clauses (i), (ii) and (iii) are based on paragraphs (a), (b) and (c) of Section 8-402(1), to which Section 8-401(3) refers by cross-reference.

⁷ There is potential interplay between the Section 18-401(3) and the automatic replacement section, 18-401(1). It’s possible to imagine that a contract qualifies as a Determining Person-Changed Contract but its determining person does not use its Section 18-401(3) authority to select an ARRC-recommended replacement before the LIBOR replacement date. Depending on how the contract’s benchmark fallback provisions are written, there might be some question whether the contract is subject to Section 18-401(1) on the LIBOR replacement date—i.e., whether the contract is also a Automatically Changed Contract. We do not address that question here.

⁸ See ARRC, ARRC Confirms a “Benchmark Transition Event” has occurred under ARRC Fallback Language (March 8, 2021), available here.

⁹ See, e.g., ARRC, Recommendation Regarding More Robust Fallback Language for New Issuances of LIBOR Securitizations (May 31, 2019) at 7 (definition of “Benchmark Transition Event”), available here.

¹⁰ The syntax issue is in the connections between the introductory language, clause a. and clause b. in the definition. Because we think our hypothetical rewrite expresses the intent correctly, we will spare you the details of the syntax issue.

¹¹ Potential tax consequences of benchmark replacement conforming changes—and of benchmark changes more generally—are outside the scope of this summary.

¹² A report related to the legislation prepared by the New York City Bar Association addresses these issues. See Report on Legislation by the New York City Bar Association: Support for the Enactment of the LIBOR Replacement Legislation (released March 11, 2021), Appendix C-7 (Trust Indenture Act Issues), available here. The report also discusses certain U.S. federal and New York State constitutional issues. See id., Appendix C-1 (U.S. Constitution—Contracts Clause), Appendix C-2 (U.S. Constitution—Takings Clause), Appendix C-3 (U.S. Constitution—Due Process Clause), Appendix C-4(NY Constitution—Takings Clause), Appendix C-5 (NY Constitution—Due Process Clause) and Appendix C-6 (NY Constitution—Nondelegation Clause).