We are unable to discern a divine purpose in LIBOR transition. However, one result of the transition is that many different interest rates will be used where LIBOR's single language is now used. These differences will include not only the different risk-free rates (RFRs) that have been recommended for each LIBOR currency, but will also include differences in how such rates (or variants thereof) are used for different financial products. Corporates and financial institutions will need to keep them all straight and not be confounded.
Many of the differences that exist in the ways RFRs will be used in different financial products and in different markets stem from the fundamental differences between LIBOR and the RFRs, and differences between cash financial products and derivatives, and between different cash products. This article will explore such differences in the context of syndicated loans and floating rate notes (FRNs). Notably, market participants in the syndicated loan space have considered ways to deal with fluctuations in principal amounts in between interest payment dates, which are more prevalent in that space than with respect to FRNs. Lenders and borrowers should assess the degree with which consistency of approach can be achieved in multicurrency facilities.
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