Our previous article on this topic outlined the challenging issue of LIBOR transition—that is, moving from LIBOR to another benchmark rate—for asset-backed securities such as residential mortgage-backed securities (RMBS), and particularly, the complication created by there being two levels of transition: LIBOR-indexed mortgage notes that are assets of an RMBS securitization trust, and LIBOR-indexed interest rates paid on the securities issued by the securitization trust. See John M. Lundin, The Special Challenges of LIBOR Transition for Residential Mortgage-Backed Securities and Other LIBOR Indexed Securitizations, NYLJ (May 25, 2021). Here, we discuss legislative solutions—both one that already has been enacted and another that has been proposed—to the problem of LIBOR transition in securitization trusts. These solutions address some of the LIBOR transition challenges, but uncertainty—and hence substantial litigation risk—remains on their ultimate scope or effectiveness.

The ARRC and the Development of a LIBOR Replacement Rate

On April 6, 2021, Gov. Andrew Cuomo signed Senate Bill 297B, which created a new Article 18-C to New York's General Obligations Law creating a framework for LIBOR transition for contracts governed by New York law where the rate to use once LIBOR is permanently unavailable is not set by the contract.

Senate Bill 297B was initially drafted by the Alternative Reference Rates Committee (ARRC), a working group created in 2014 by the Federal Reserve Board and the Federal Reserve Bank of New York to address LIBOR transition. The ARRC is composed of a diverse group of private financial market participants. Working with financial regulators, it has proposed the Secured Overnight Financing Rate (SOFR) as the LIBOR replacement for U.S. Dollar transactions and developed a LIBOR transition plan and related publications.