Anticipating the LIBOR Transition: Implications for Floating Rate Financing

Given the shifts in Federal Reserve policy, floating-rate debt has recently become more appealing for some. Is it right for you, though?

The LIBOR Phase-Out

When considering a floating rate loan, it is important to consider the sunset of LIBOR (London Interbank Offered Rate) as a benchmark rate over the next few years. For this transition to be completed, more than $200T in global asset financing will need the index to be shifted from LIBOR to SOFR.

The impetus for this change is to track a more representative index rate. Currently, LIBOR averages just $1B in actual transaction volume per day. In comparison, SOFR is derived from more than $780B in average daily transaction volume.

What Does the LIBOR Replacement Mean for Floating Rate Debt?

This transition will influence all new and existing adjustable rate loans. To help determine if floating-rate debt is right for your business, we have outlined the current state-of-affairs for the three short-term rates, and dive into what we expect of the shift from LIBOR to SOFR.

We’ve published a report that discusses how this transition will influence all new and existing adjustable rate commercial real estate loans. Key takeaways are: