Amendageddon just beginning of loan market's Libor woes
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Amendageddon just beginning of loan market's Libor woes

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Libor is likely on the way out for sterling loans in 2021, and it is almost impossible to overestimate the deluge of facility amendments headed towards loans desks. But there is worse to come.

Libor is expected to be phased out for sterling-denominated loans at the end of 2021 and replaced with Sonia. Libor for other currencies and Euribor are expected to stop as well.

Such a major, fundamental reform will always come with unexpected consequences, but the sheer volume of amend exercises lenders are likely to undertake to switch benchmarks is astounding.


There are around $2.5tr-equivalent of loans outstanding that are priced off Libor and Euribor, Barclays said last year, and industry experts are scratching their heads trying to work out a way to shift the benchmarks deals are priced against on a wholesale basis, rather than one by one.

So far, the Loan Market Association and an array of lawyers haven’t been able to come up with anything for mass changes to sterling Libor docs. Given how keen all parties involved are on trying to make the switch to risk free rates as smooth as possible, it'is likely those focusing on dollar Libor and Euribor benchmarked loans have hit similar dead ends. 

This means a tsunami of facility amendments are set to hit the market, in an unprecedented change to documentation.

Like any natural disaster, after an initial surge comes the equally destructive aftershocks. Any treasurer that is being forced to amend their loan facility because of a technical reason beyond their control would be foolish not to take the opportunity to run a full amend and extend exercise on their bank debt.

After all, they’ve already got all their lending banks on the phone, and A&Es are notoriously cheap for borrowers. The issue with this is that it lets borrowers refinance by the back door by opening up an easy way to extend bank facilities.

If the borrower’s market of the last few years continues – and loans bankers grumbling that there isn’t enough activity is as old as the loan market itself – banks will have little choice but to agree, and in doing so they will lose what little fees refinancing offers. 

The switch away from existing floating rate benchmarks is going to be an unmatched admin nightmare, but it will also hit loans desks where it hurts the most – their P&L.

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