Indiana and Tennessee Enact Laws Addressing Libor Transition

Indiana and Tennessee recently enacted legislation facilitating the transition away from the London Interbank Offered Rate (LIBOR).

At the outset of this discussion we note that on March 15, 2022, President Joe Biden signed into law the Consolidated Appropriations Act, 2022 (the Act), which addresses the transition away from the LIBOR. Among other changes, the Act preempts any provision of state or local law relating to the selection or use of a benchmark replacement for the LIBOR or related conforming changes. Accordingly, the Act may supersede some portions of the state legislation discussed below. We previously reported on the Act here.

Indiana enacted Senate Bill 371 (SB371), which adds provisions to the Indiana Code concerning financial institutions to provide for the replacement of LIBOR with a recommended benchmark replacement that is based on the secured overnight financing rate (SOFR). Among other amendments to the Indiana Code, SB371 sets forth the events that serve to trigger the replacement of LIBOR, and specifies that if a recommended benchmark replacement becomes the benchmark replacement for any contract, security or instrument, such benchmark replacement conforming changes become an integral part of such contract, security, or instrument by operation of law.  Additionally, SB371 provides that the selection or use of a recommended benchmark replacement for a contract, security, or instrument constitutes a commercially reasonable replacement for and a commercially substantial equivalent to LIBOR, and that a person is not liable for damages, and is not subject to any claim for equitable relief, in connection with the selection or use of a recommended benchmark replacement. SB371 became effective upon passage on March 10, 2022.

Tennessee House Bill 2110 (HB2110) enacts similar provisions governing LIBOR discontinuance and replacement. For example, HB2110 provides that the recommended benchmark replacement (i.e., the SOFR), by operation of law, is the benchmark replacement for a contract, security, or instrument that uses LIBOR as a benchmark. HB2110 also sets out in detail provisions regarding the construction and effect of selection or use of a recommended benchmark replacement for LIBOR, liability arising out of or related to the selection or use of a recommended benchmark replacement. HB2110 became effective upon passage on February 28, 2022.