The end of LIBOR: A guide for treasurers
Hedging and Capital Markets
Private Equity | London
This white paper is intended to help treasurers prepare for the disappearance of the financial sector’s most important number.
- LIBOR will be discontinued after the end of 2021.
- Between now and the end of 2021 treasurers will need to restructure their loans and derivatives so that risk-free rates are referenced instead of LIBOR.
At $240 trillion, the value of debt and derivative contracts that rely on the London Interbank Offered Rate (LIBOR) is approximately three times global GDP. Meanwhile, LIBOR itself is set to be discontinued shortly after the end of 2021. This primer is intended to help treasurers prepare for the disappearance of the financial sector’s most important number.
This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.
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An interest rate swaption is an option that provides the borrower with the right but not the obligation to enter into an interest rate swap on an agreed date(s) in the future on terms protected by the swaption.
An interest rate swap and floor is a combination of an interest rate swap with the purchase of an interest rate floor.
A participating interest rate swap is a derivative instrument that combines an interest rate swap with an interest rate cap. A portion of the debt is hedged with a swap and the remainder with a cap.
A cancellable swap is a combination of an interest rate swap and a receiver’s swaption that may be cancelled by the borrower at no cost on an agreed future date.
An interest rate collar is an option used to hedge exposure to interest rate moves. It protects a borrower against rising rates and establishes a floor on declining rates through the purchase of an interest rate cap and the simultaneous sale of an interest rate floor.