Loan market braced for rush to Libor finish line
May 31, 2023 | Harriet Clarfelt | Financial Times
About half of the $1.4tn US junk loan market is still shackled to Libor just 30 days before the rate is set to expire, with meagre dealmaking activity curbing companies’ ability to split from the lending benchmark and embrace its replacement. The slower-than-expected progress means that corporate borrowers and the institutions facilitating their switch to the new benchmark face a crunch point, as they strive to push loans over the line before the cut-off, to avoid automatically falling back on to potentially less favourable borrowing terms. At least $700bn worth of lowly rated corporate loans are still priced using Libor, according to estimates from industry participants, despite years of warnings that the rate will cease this summer. Moody’s puts the percentage outstanding even higher, at approximately 60 per cent, or $900bn, as of May 19 — based on holdings within loan portfolios rated by the agency.
