Originally published on LinkedIn

By Kevin Owyang

At the end of this year, LIBOR will begin phasing out. And around $700 billion in collateralized loan obligations (“CLOs”) will need to replace LIBOR with a new reference rate. Investors can get ahead of the game with this roadmap of what’s ahead.
Why LIBOR is going away.

In July 2017, the Financial Conduct Authority (“FCA”) announced LIBOR would cease after 2021 (the “2017 FCA Announcement”). “LIBOR”, an acronym for the London Interbank Offered Rate, has been the benchmark for over 40 years, used in $350 trillion of derivatives, loans, and securitization transactions worldwide.
LIBOR is reported daily by 18 international banks.  It reflects their estimated borrowing cost for the British pound sterling (GBP), Swiss franc, euro, Japanese yen, and US dollar (USD). Unlike market-based indexes calculated from actual transaction data, LIBOR includes estimates of what a bank would pay had it needed to borrow.

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Kevin Owyang is a risk management expert and financial writer published in the Business Journal, Private Equity Wire, Hart’s, New York Life Investments, and more.

Photos licensed under Creative Commons from O Palsson, Monica McGivern, and Henry Zbyszynski