In today’s low interest rate environment, financial institutions are increasingly interested in the effects that negative rates could have on loan facilities that bear interest based on floating rates. Recently, some lenders have recognized the possibility of LIBOR being negative and, following an established practice in Europe, are requiring that credit agreements have a “zero floor,” meaning that if LIBOR falls below zero, the rate would be deemed to be zero for the purposes of the agreement. While this fix addresses new agreements, questions remain regarding credit agreements signed before adoption of the “zero floor” convention and how a negative LIBOR would be treated under these agreements.
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