The London Interbank Offered Rate (“LIBOR”) is a globally accepted benchmark interest rate, which represents the rate at which banks lend to one another in the international interbank market for short-term loans. It is likely that LIBOR will cease to be published after 2021, and will be replaced with an alternative “risk-free rate”. While, new financing and finance documents will need to ensure new language and alternative rates, the change or transition of benchmark rates for existing transactions will raise certain issues and concerns; as these changes may necessitate negotiation and agreement between various parties. This will require market participants to review their financing arrangements to assess what steps they need to take to ensure a smooth transition to the replacement rates including the amendments required and negotiated between the parties to the financing documents.
What is LIBOR?
LIBOR introduced in 1986, serves as a globally accepted key benchmark interest rate, which represents the rate at which banks lend to one another in the international interbank market for short-term loans. Intercontinental Exchange Benchmark Administration Limited (“ICE”) administers LIBOR and publishes the interest rate on a daily basis.
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