LIBOR and risk free rates: Frequently asked questions

The cessation of LIBOR has significant implications for the loan market and borrowers need to prepare.

We are advising a wide range of institutions on IBOR transition, including corporates, globally systemically important banks, asset managers, and boutique investment firms. We have used our experience to compile a list of common questions to help our clients to understand the key issues.

Common client questions include:

1. When will LIBOR cease to be published?
2. What benchmark will replace LIBOR?
3. How do risk free rates differ from LIBOR?
4. When will borrowers know the amount of interest payable?
5. How will interest be calculated when using risk free rates as a benchmark?
6. What is an observation shift and why does it matter?
7. What are market conventions used to calculate the rate?
8. How can a borrower check the calculation?
9. What is a credit adjustment spread and why is it needed?
10. How is the credit adjustment spread calculated?
11. What other documentary points does the borrower need to consider in loan agreements referencing risk free rates?
12. Do I need to be concerned about related financial products transition to risk free rates?
13. What is ISDA’s approach to LIBOR transition?
14. What happens if the borrower does not agree to change to a new  benchmark?
15. Who pays for amendments relating to LIBOR transition?
16. What should borrowers do now?

Download the PDF for the answers.