The transition from Libor to US dollars enters a critical phase for the leveraged loan market


A U.S. dollar bill is seen in front of a stock chart in this November 7, 2016 illustration. REUTERS/Dado Ruvic/Illustration/File Photo

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NEW YORK, June 30 (Reuters) – The one-year countdown began on Thursday to the end of the release of the tarnished London Interbank Offer Rate, or Libor, for existing U.S. dollar-denominated contracts, and terms volatile market conditions delayed change. at new rates for some market players.

“We have 12 months to D-Day from a legacy paper perspective,” said Tal Reback, who leads KKR’s global Libor transition effort in private equity, credit, capital markets. and real estate. “The next six to nine months is really the critical window because you’ve already lost a few months due to market volatility this year,” she said.

In the leveraged loan market, volatile market conditions have prevented many issuers from tapping the markets, which is when they would normally review existing debt and potentially convert it to another rate of interest. benchmark interest, slowing the transition, Reback said.

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According to JPMorgan and IHS Markit, 87.8% of leveraged loans are still linked to Libor.

Once dubbed the world’s most important figure, Libor has been used around the world to value everything from mortgages and student loans to derivatives and credit cards worth hundreds of trillions of dollars. Read more

Regulators ordered an end to Libor after fining banks billions for rigging the rate, and recommended market participants use alternatives compiled by central banks, such as the overnight rate the guaranteed day (SOFR) of the Federal Reserve. Read more

Calculated in five currencies, Libor was largely phased out for new contracts at the end of 2021, although the bulk of existing US dollar-denominated contracts have until June 30, 2023 to make the switch.

Other parts of the market made substantial progress, with SOFR futures overtaking the number of eurodollar futures on the CME (CME.O) for the first time in April, and federal legislation in March allowing contracts that do not have the mechanisms to switch from one rate to another to switch to SOFR.

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Reporting by John McCrank; Editing by David Gregorio

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