On June 1, 2023, Bill Wagner was quoted regarding the approaching London Inter-Bank Offered Rate (Libor) deadline.
According to the article, Libor, which has long underpinned financial contracts such as mortgages, corporate loans, and interest-rate derivatives, will cease in its current form in July—essentially the death penalty for a manipulation scandal that came to light more than a decade ago. Companies, however, have been slow to shed their Libor ties over the past several years and ready their information-technology systems to handle the switch to a replacement.
More than 8% of outstanding U.S. leveraged loans tied to Libor have no successor listed as of May 30, down from 10.9% a year earlier. Companies that lack transitional language in their financial contracts or haven’t manually switched to a replacement rate could face operational risk and higher costs as their contracts could revert to the prime lending rate, a pricier benchmark, come July.
Finance executives need to have protocols and reporting processes in place so they can look at their portfolios and readily determine the value of their financial contracts, said Wagner. “This is a lot more than just simply updating programming,” he said.
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