August 16, 2022

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Libor will finally say goodbye to the markets with the New Year

Libor will finally say goodbye to the markets with the New Year

The transition of the interbank market from benchmarks such as Ionia and Libor to the Ester will start from December 31.

The libor index, which serves as a reference for financial contracts valued at about 230 billion US dollars (203 billion euros), will bid farewell to the markets by the new year, when its publication stops.

London Interbank Offered Rate – LIBOR is an interbank rate based on the interest rates at which British banks grant loans. The London Interbank Offered Rate, or LIBOR, has been the benchmark for financial markets, including the loan industry, for decades. But a rate-rigging scandal nearly a decade ago tarnished his reputation, prompting regulators to ask for a replacement. The Alternative Reference Rates Committee (ARRC), set up by the Federal Reserve, selected SOFR in 2017.

Previously, Bank of America began marketing the first leveraged rate-linked loan that would replace Libor, a milestone for the sector in its gradual abandonment of this credit standard.

The US bank helped prepare a $3.25 billion (€2.75 billion) financing package that includes a $750 million syndicated loan linked to SOFR – a guaranteed overnight financing rate – to finance the acquisition of Sanderson Farms product. Chicken from Cargill and Continental Grain for $4.5 billion, according to the people involved in the deal.

The loan will initially carry an interest rate pegged to Libor, but that rate will automatically convert to SOFR on December 31. Besides the syndication, a group of banks led by Bank of America is preparing a $750 million revolving credit line and separate bank loans, which are expected to be tied to SOFR since its inception, according to a person familiar with the financing package.

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The process is closely followed by players in the loan market, which is worth $1.6 trillion and is an essential source of funding for companies and venture capital groups that want to fund leveraged purchases. This will likely be the first of many SOFR-linked syndicated loans to hit the market before the year-end deadline, as banks will not be able to offer LIBOR-linked loans.