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ARTICLE · 27 OCTOBER 2023

LIBOR Fallback To Prime May Increase Corporate Loan Costs

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The London Interbank Offered Rate (LIBOR) officially ceased to be published on June 30, 2023. The change comes after almost 40 years of LIBOR serving as the principal benchmark...

United StatesFinance and Banking
Nathan J. Moore
Nathan J. Moore
Dana Bradley
Dana Bradley
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IN BRIEF

  • After years of transition efforts, the benchmark interest rate for nearly all commercial loans for the past 40 years (LIBOR) has been phased out and replaced in most agreements with a new benchmark rate (SOFR) that results in all-in borrowing costs that are in line with LIBOR.
  • Some commercial loan agreements without SOFR-based fallback provisions, however, may revert to a prime or base rate if LIBOR is unavailable, leading to increased loan costs.
  • Companies should review their commercial loan agreements and any other payment obligations with interest accrual provisions to determine the effect of the LIBOR cessation on their interest rate. If LIBOR's unavailability has resulted in a prime or base rate benchmark instead of SOFR, borrowers should promptly reach out to counterparties to amend the agreement.

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