LIBOR, the common interest rate benchmark used in contracts, is ending. Businesses need to take action to check their exposure and speak to their lenders and advisers about transition.
LIBOR is the benchmark that lenders use to calculate the interest rate for financial products – it can also be found in other contracts. However, LIBOR is being replaced by a more transparent
benchmark called SONIA in the UK. Lenders will no longer be able to issue loans based on LIBOR from 1 April and new loans will need to reference a ‘risk free rate’ or an alternative non-LIBOR rate. Any existing contracts based on LIBOR will be switched to an alternate reference rate before 31 December 2021.
A change in interest rate could impact your business for existing loans and new financing. It is important you understand if and how this affects you. We know these are difficult times, with the pandemic putting focus on immediate cashflow needs or employee and customer concerns, so this may not be on your radar. However, COVID-19 has not changed the need to move away from LIBOR. The impact of an interest rate change needs to be looked at in the bigger picture of all borrowing, timings and requirements, so make sure LIBOR is on your list. Read our LIBOR, NO MORE mini-guide to find out what your business needs to do.
The CBI is working actively with UK Finance, the Institute of Chartered Accountants in England and Wales, and Association of Corporate Treasurers as well as the Bank of England and Financial Conduct Authority (FCA) on LIBOR transition. This includes a series of guides and events, including LIBOR, NO MORE.
To find out more about the LIBOR transition and the CBI’s work, please contact Chris Wilford, Head of Financial Services Policy.
