When Mr Zero-Floor Met Mr Swap

March 2017, International Banker
By Lerika Joubert, Senior Associate, Taylor Wessing LLP & Jamie Macdonald, Chatham Financial Europe Ltd

It has become market practice for lenders to include wording in facility agreements that provides that the applicable IBOR (interbank offered rate) shall never be less than zero (a zero floor). But what happens if the transaction includes a corresponding interest rate swap (IRS)? Could the inclusion of a zero floor result in mismatches with rates payable under the swap?

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