After a long and at times scandalous life, LIBOR is retiring. Earlier this year, Andrew Bailey, chief executive officer of the United Kingdom’s Financial Conduct Authority (FCA), the regulator of the London Interbank Offered Rate (LIBOR), announced that the interest rate benchmark founded in the 1980s would be phased out by the end of 2021. This Client Alert briefly sets out the background that led to this decision, and how this decision has impacted syndicated credit agreements.
WHAT IS LIBOR? -
LIBOR (currently known as ICE LIBOR and administered by the Intercontinental Exchange (IE)) is a benchmark for the rate at which major banks in the London interbank market lend to one another. IE administers a panel of 11 to 17 banks for five currencies with seven maturities to produce 35 quoted rates each London business day. IE averages the reported rates, with each average being readily available on Reuters, Bloomberg and similar services. Hundreds of trillions of dollars’ worth of financial products around the world reference the benchmark, including corporate loans, swaps, student and other consumer loans and mortgages. Economists and central banks analyse LIBOR fluctuations to project economic health, and some central banks reference LIBOR to determine their own interest rate targets.
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