Senate Bill 5946 - Discontinuance of the London Interbank Offered Rate (State of Washington, 2022)

Summary

Senate Bill 5946, State of Washington 67th Legislature, 2022 Regular Session, by Senators Mullet and Nguyen, read first time 01/26/22 and referred to the Committee on Business, Financial Services & Trade. The bill relates to protecting consumers from the discontinuance of the London interbank offered rate and adds a new chapter to Title 19 RCW. Section 1 defines terms for the chapter, including "Benchmark", "Benchmark replacement" and "Calculating person". Section 6 states that the act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.

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Full text

     S-3866.2

                               SENATE BILL 5946


     State of Washington       67th Legislature         2022 Regular Session

     By Senators Mullet and Nguyen

     Read first time 01/26/22.       Referred   to   Committee   on   Business,
     Financial Services & Trade.




1        AN ACT Relating to protecting consumers from the discontinuance
2    of the London interbank offered rate; adding a new chapter to Title
3    19 RCW; and declaring an emergency.


4    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 5       NEW SECTION.    Sec. 1.    DEFINITIONS. The definitions in this
 6   section apply throughout this chapter unless the context clearly
 7   requires otherwise.
 8       (1) "Benchmark" means an index of interest rates or dividend
 9   rates that is used, in whole or in part, as the basis of or as a
10   reference for calculating or determining any valuation, payment, or
11   other measurement under or in respect of a contract, security, or
12   instrument.
13       (2) "Benchmark replacement" means a benchmark, or an interest
14   rate or dividend rate, which may or may not be based in whole or in
15   part on a prior setting of the LIBOR, to replace the LIBOR or any
16   interest rate or dividend rate based on the LIBOR, whether on a
17   temporary, permanent, or indefinite basis, under or in respect of a
18   contract, security, or instrument.
19       (3) "Benchmark replacement conforming changes" means, with
20   respect to any type of contract, security, or instrument, any
21   technical, administrative, or operational changes, alterations, or
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 1   modifications that are associated with and reasonably necessary to
 2   the use, adoption, calculation, or implementation of a recommended
 3   benchmark replacement and that:
 4       (a) Have been selected or recommended by a relevant recommending
 5   body; and
 6       (b) If, in the reasonable judgment of the calculating person, the
 7   benchmark replacement conforming changes selected or recommended
 8   pursuant to (a) of this subsection do not apply to such contract,
 9   security, or instrument or are insufficient to permit administration
10   and calculation of the recommended benchmark replacement, then
11   benchmark replacement conforming changes shall include such other
12   changes, alterations, or modifications that, in the reasonable
13   judgment of the calculating person:
14       (i) Are necessary to permit administration and calculation of the
15   recommended benchmark replacement under or in respect of such
16   contract, security, or instrument in a manner consistent with market
17   practice   for  substantially   similar  contracts,   securities,  or
18   instruments and, to the extent practicable, the manner in which such
19   contract, security, or instrument was administered immediately prior
20   to the LIBOR replacement date; and
21       (ii) Would not result in a disposition of such contract,
22   security, or instrument for United States federal income tax
23   purposes.
24       (4) "Calculating person" means, with respect to any contract,
25   security, or instrument, any person, which may be the determining
26   person, responsible for calculating or determining any valuation,
27   payment, or other measurement based on a benchmark.
28       (5) "Contract, security, or instrument" includes, without
29   limitation, any contract, agreement, mortgage, deed of trust, lease,
30   security, whether representing debt or equity, and including any
31   interest in a corporation, a partnership, or a limited liability
32   company, instrument, or other obligation.
33       (6) "Determining person" means, with respect to any contract,
34   security, or instrument, in the following order of priority:
35       (a) Any person specified as a "determining person"; or
36       (b) Any person with the authority, right, or obligation to:
37       (i) Determine the benchmark replacement that will take effect on
38   the LIBOR replacement date;
39       (ii) Calculate or determine a valuation, payment, or other
40   measurement based on a benchmark; or
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 1       (iii) Notify other persons of the occurrence of a LIBOR
 2   discontinuance event, a LIBOR replacement date, or a benchmark
 3   replacement.
 4       (7) "Fallback provisions" means terms in a contract, security, or
 5   instrument that set forth a methodology or procedure for determining
 6   a benchmark replacement, including any terms relating to the date on
 7   which the benchmark replacement becomes effective, without regard to
 8   whether a benchmark replacement can be determined in accordance with
 9   such methodology or procedure.
10       (8) "LIBOR" means, for purposes of the application of this
11   chapter to any particular contract, security, or instrument, the
12   United States dollar London interbank offered rate as administered by
13   the intercontinental exchange benchmark administration limited or any
14   predecessor or successor thereof, or any tenor thereof, as
15   applicable, that is used in making any calculation or determination
16   thereunder.
17       (9) "LIBOR discontinuance event" means the earliest to occur of
18   any of the following:
19       (a) A public statement or publication of information by or on
20   behalf of the administrator of the LIBOR announcing that such
21   administrator has ceased or will cease to provide the LIBOR,
22   permanently or indefinitely, provided that, at the time of the
23   statement or publication, there is no successor administrator that
24   will continue to provide the LIBOR;
25       (b) A public statement or publication of information by the
26   regulatory supervisor for the administrator of the LIBOR, the United
27   States   federal  reserve   system,   an  insolvency   official  with
28   jurisdiction over the administrator for the LIBOR, a resolution
29   authority with jurisdiction over the administrator for the LIBOR or a
30   court or an entity with similar insolvency or resolution authority
31   over the administrator for the LIBOR, which states that the
32   administrator of the LIBOR has ceased or will cease to provide the
33   LIBOR permanently or indefinitely, provided that, at the time of the
34   statement or publication, there is no successor administrator that
35   will continue to provide the LIBOR; or
36       (c) A public statement or publication of information by the
37   regulatory supervisor for the administrator of the LIBOR announcing
38   that the LIBOR is no longer representative. For purposes of this
39   subsection, a public statement or publication of information that
40   affects one or more tenors of the LIBOR does not constitute a LIBOR
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 1   discontinuance event with respect to any contract, security, or
 2   instrument that: (i) Provides for only one tenor of the LIBOR, if
 3   such contract, security, or instrument requires interpolation and
 4   such tenor can be interpolated from the LIBOR tenors that are not so
 5   affected; or (ii) permits a party to choose from more than one tenor
 6   of the LIBOR and any of such tenors (A) is not so affected, or (B) if
 7   such contract, security, or instrument requires interpolation, can be
 8   interpolated from the LIBOR tenors that are not so affected.
 9       (10) "LIBOR replacement date" means:
10       (a) In the case of a LIBOR discontinuance event described in
11   subsection (9)(a) and (b) of this section, the later of: (i) The date
12   of the public statement or publication of information referenced
13   therein; and (ii) the date on which the administrator of the LIBOR
14   permanently or indefinitely ceases to provide the LIBOR; and
15       (b) In the case of a LIBOR discontinuance event described in
16   subsection (9)(c) of this section, the date of the public statement
17   or publication of information referenced therein. For purposes of
18   this subsection, a date that affects one or more tenors of the LIBOR
19   does not constitute a LIBOR replacement date with respect to any
20   contract, security, or instrument that: (i) Provides for only one
21   tenor of the LIBOR, if such contract, security, or instrument
22   requires interpolation and such tenor can be interpolated from the
23   LIBOR tenors that are not so affected; or (ii) permits a party to
24   choose from more than one tenor of the LIBOR and any of such tenors
25   (A) is not so affected, or (B) if such contract, security, or
26   instrument requires interpolation, can be interpolated from the LIBOR
27   tenors that are not so affected.
28       (11) "Recommended benchmark replacement" means with respect to
29   any particular type of contract, security, or instrument, a benchmark
30   replacement based on the SOFR, which shall include any recommended
31   spread adjustment and any benchmark replacement conforming changes,
32   that shall have been selected or recommended by a relevant
33   recommending body with respect to such type of contract, security, or
34   instrument.
35       (12) "Recommended spread adjustment" means a spread adjustment,
36   or method for calculating or determining such spread adjustment,
37   which may be a positive or negative value or zero, that shall have
38   been selected or recommended by a relevant recommending body for a
39   recommended benchmark replacement for a particular type of contract,
40   security, or instrument and for a particular term to account for the
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1    effects of the transition or change from the LIBOR to a recommended
2    benchmark replacement.
3        (13) "Relevant recommending body" means the federal reserve
4    board, the federal reserve bank of New York, the alternative
5    reference rates committee, or any successor to any of them.
6        (14) "SOFR" means, with respect to any day, the secured overnight
7    financing rate published for such day by the federal reserve bank of
8    New York, as the administrator of the benchmark or a successor
9    administrator, on the federal reserve bank of New York's website.

10       NEW SECTION.    Sec. 2.  EFFECT OF THE LIBOR DISCONTINUANCE ON
11   AGREEMENTS. (1) On the LIBOR replacement date, the recommended
12   benchmark replacement shall, by operation of law, be the benchmark
13   replacement for any contract, security, or instrument that uses the
14   LIBOR as a benchmark and:
15       (a) Contains no fallback provisions; or
16       (b) Contains fallback provisions that result in a benchmark
17   replacement, other than a recommended benchmark replacement, that is
18   based in any way on any LIBOR value.
19       (2) Following the occurrence of a LIBOR discontinuance event, any
20   fallback provisions in a contract, security, or instrument that
21   provide for a benchmark replacement based on or otherwise involving a
22   poll, survey, or inquiries for quotes or information concerning
23   interbank lending rates or any interest rate or dividend rate based
24   on the LIBOR shall be disregarded as if not included in such
25   contract, security, or instrument and shall be deemed null and void
26   and without any force or effect.
27       (3) This subsection applies to any contract, security, or
28   instrument that uses the LIBOR as a benchmark and contains fallback
29   provisions that permit or require the selection of a benchmark
30   replacement that is:
31       (a) Based in any way on any LIBOR value; or
32       (b) The substantive equivalent of section 3(1) (a) through (c) of
33   this act. A determining person shall have the authority under this
34   chapter, but shall not be required, to select on or after the
35   occurrence of a LIBOR discontinuance event the recommended benchmark
36   replacement as the benchmark replacement. Such selection of the
37   recommended benchmark replacement shall be:
38       (i) Irrevocable;


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 1       (ii) Made by the earlier of either the LIBOR replacement date, or
 2   the latest date for selecting a benchmark replacement according to
 3   such contract, security, or instrument; and
 4       (iii) Used in any determinations of the benchmark under or with
 5   respect to such contract, security, or instrument occurring on and
 6   after the LIBOR replacement date.
 7       (4) If a recommended benchmark replacement becomes the benchmark
 8   replacement for any contract, security, or instrument pursuant to
 9   subsection (1) or (3) of this section, then all benchmark replacement
10   conforming changes that are applicable, in accordance with the
11   definition of benchmark replacement conforming changes, to such
12   recommended benchmark replacement shall become an integral part of
13   such contract, security, or instrument by operation of law.
14       (5) The provisions of this chapter shall not alter or impair:
15       (a) Any contract, security, or instrument that contains fallback
16   provisions that would result in a benchmark replacement that is not
17   based on the LIBOR including, but not limited to, the prime rate or
18   the federal funds rate, except that such contract, security, or
19   instrument shall be subject to subsection (2) of this section;
20       (b) Any contract, security, or instrument subject to subsection
21   (3) of this section as to which a determining person does not elect
22   to use a recommended benchmark replacement pursuant to subsection (3)
23   of this section or as to which a determining person elects to use a
24   recommended benchmark replacement prior to the occurrence of a LIBOR
25   discontinuance event, except that such contract, security, or
26   instrument shall be subject to subsection (2) of this section; or
27       (c) The application to a recommended benchmark replacement of any
28   cap, floor, modifier, or spread adjustment to which the LIBOR had
29   been subject pursuant to the terms of a contract, security, or
30   instrument.
31       (6) Notwithstanding the uniform commercial code or any other law
32   of this state, this chapter shall apply to all contracts, securities,
33   and instruments, including contracts with respect to commercial
34   transactions, and shall not be deemed to be displaced by any other
35   law of this state.


36       NEW SECTION.   Sec. 3.   CONTINUITY OF CONTRACT AND SAFE HARBOR.
37   (1) The selection or use of a recommended benchmark replacement as a
38   benchmark replacement under or in respect of a contract, security, or
39   instrument by operation of section 2 of this act shall constitute:
                                     p. 6                          SB 5946
 1       (a) A commercially reasonable replacement for and a commercially
 2   substantial equivalent to the LIBOR;
 3       (b) A reasonable, comparable, or analogous term for the LIBOR
 4   under or in respect of such contract, security, or instrument;
 5       (c) A replacement that is based on a methodology or information
 6   that is similar or comparable to the LIBOR; and
 7       (d) Substantial performance by any person of any right or
 8   obligation relating to or based on the LIBOR under or in respect of a
 9   contract, security, or instrument.
10       (2) None of: (a) A LIBOR discontinuance event or a LIBOR
11   replacement date; (b) the selection or use of a recommended benchmark
12   replacement as a benchmark replacement; or (c) the determination,
13   implementation, or performance of benchmark replacement conforming
14   changes, in each case, by operation of section 2 of this act, shall:
15       (i) Be deemed to impair or affect the right of any person to
16   receive a payment, or affect the amount or timing of such payment,
17   under any contract, security, or instrument; or
18       (ii) Have the effect of: (A) Discharging or excusing performance
19   under any contract, security, or instrument for any reason, claim, or
20   defense including, but not limited to, any force majeure or other
21   provision in any contract, security, or instrument; (B) giving any
22   person the right to unilaterally terminate or suspend performance
23   under any contract, security, or instrument; (C) constituting a
24   breach of a contract, security, or instrument; or (D) voiding or
25   nullifying any contract, security, or instrument.
26       (3) A person shall not have any liability for damages to any
27   person or be subject to any claim or request for equitable relief
28   arising out of or related to the selection or use of a recommended
29   benchmark replacement or the determination, implementation, or
30   performance of benchmark replacement conforming changes, in each
31   case, by operation of section 2 of this act, and such selection or
32   use of the recommended benchmark replacement or such determination,
33   implementation, or performance of benchmark replacement conforming
34   changes shall not give rise to any claim or cause of action by any
35   person in law or in equity.
36       (4) The selection or use of a recommended benchmark replacement
37   or the determination, implementation, or performance of benchmark
38   replacement conforming changes, by operation of section 2 of this
39   act, shall be deemed to:


                                     p. 7                          SB 5946
 1       (a) Not be an amendment or modification of any contract,
 2   security, or instrument; and
 3       (b) Not prejudice, impair, or affect any person's rights,
 4   interests, or obligations under or in respect of any contract,
 5   security, or instrument.
 6       (5) Except as provided in either section 2 (1) or (3) of this
 7   act, the provisions of this chapter shall not be interpreted as
 8   creating any negative inference or negative presumption regarding the
 9   validity or enforceability of:
10       (a) Any benchmark replacement that is not a recommended benchmark
11   replacement;
12       (b) Any spread adjustment, or method for calculating or
13   determining a spread adjustment, that is not a recommended spread
14   adjustment; or
15       (c) Any changes, alterations, or modifications to or in respect
16   of a contract, security, or instrument that are not benchmark
17   replacement conforming changes.


18       NEW SECTION.     Sec. 4.    Sections 1   through   3   of   this   act
19   constitute a new chapter in Title 19 RCW.


20       NEW SECTION.    Sec. 5.    If any provision of this act or its
21   application to any person or circumstance is held invalid, the
22   remainder of the act or the application of the provision to other
23   persons or circumstances is not affected.


24       NEW SECTION.   Sec. 6.  This act is necessary for the immediate
25   preservation of the public peace, health, or safety, or support of
26   the state government and its existing public institutions, and takes
27   effect immediately.

                                  --- END ---




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