A survey by the Alternative Reference Rates Committee (ARRC) shows nearly all lenders have plans in place for the transition of leveraged loans from the LIBOR benchmark next year. But the Loan Sales and Trading Association (LSTA) is concerned that too many borrowers may be dependent on traditional refinancing plans. This path may be difficult, especially in the current environment. We agree with the LSTA that a “traffic jam” may be created as borrows pivot to amendments to get the transition done. Roughly 90% of respondents to the ARRC’s Loan Remediation Survey say they have written plans to switch from LIBOR, but the transition has lagged this year with 85% of loans still using LIBOR as the Base Rate; a rate that disappears after June 2023. Nearly half of borrowers plan to refinance loans directly into a new alternative rate by that date, but again, that strategy is largely dictated by capital markets access and worth following.
These comments are the opinion of Newfleet Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
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