Many businesses are all too aware of the cashflow implications created by the pandemic and have focussed on immediate cashflow needs or employee and customer concerns. However, the impact of an interest rate change needs to be looked at in the bigger picture of all borrowing, timings and requirements. The impact is not only on existing borrowing but also on any new finance sought in the future.
The London Inter-Bank Offered Rate (Libor) is one of the most important numbers in financial markets and the daily published rates are referenced in an estimated total of US$400tn worth of financial contracts, including loans, mortgages, bonds, securitised products and derivatives. It is an interest rate that has been used in loan agreements but also pops up in other unexpected places.
Libor is currently slated to end on 31 December 2021, and businesses looking to get a fully rounded cashflow picture will need to understand how Libor could affect existing loan agreements or any other hidden places that have referenced the benchmark rate.
ICAEW has a hub page to help uncover the detailed issues but we have also partnered with UK Finance to produce something more accessible. This simple introductory guide to the global transition from (Sterling £) LIBOR for businesses should help provide clarity for those affected.
Further resources:
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