Libor limbo: loan market fallback language upends lenders

Banks seek to replace painful fallback language in loan docs and avoid a cost-of-funds contingency

Risk 0220 In depth Mark Long NB illustration
Mark Long, nbillustration.co.uk

For lenders across Europe, the Middle East and Africa, the loss of Libor reference rates could have punishing consequences.

In standard Loan Market Association (LMA) loan documents, the cost of funds – the rate at which banks fund themselves – is the rate to which contracts default: the fallback rate. Envisaged as a stopgap contingency, not a longer-term transition, the cost-of-funds fallback invites a host of confidentiality and commercial issues for banks. For non-traditional lenders – and

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