Debt Finance

The Financial Conduct Authority has announced that the 3-month synthetic sterling LIBOR setting (which is the last remaining tenor) will cease at the end of March 2024. This means that there will be no sterling LIBOR rate quoted after this date. Since the end of June 2023, US dollar LIBOR is now published (for limited settings) on a synthetic basis only until end-September 2024. This FCA announcement outlines the limited use cases for the synthetic dollar rate.

Companies should have already worked with their lenders to remove any remaining LIBOR-related exposures in their loans. Read our commentary on the consequences for other commercial contracts which reference LIBOR (for instance in late payment clauses). We also discuss alternative rates such as central bank rates, Term SONIA (for sterling) and Term SOFR (for dollars).

A large portion of mid-market leveraged financings are funded by direct lenders providing a single 'unitranche' term facility, with traditional banks providing the smaller revolving credit facility (RCF) essential to the day-to-day capital requirements of the borrower. Whilst these direct lenders can offer large tranches of term debt on looser terms and without the need for any amortisation, most are unable to provide RCFs; this tends to be where bank lenders excel. However, the economics of these facilities are not particularly remunerative and the RCF provider will typically have its commitments dwarfed by the unitranche. The effective quid pro quo for this dynamic tends to be that the bank lender will require "super senior" status, meaning that it will be paid out in priority in an enforcement to reduce the risk profile and better reflect the economics. In his recent article in the Journal of International Banking and Financial Law, Senior Associate, Michael Leadbeater, explores the key negotiating points that arise between the two classes of lender on such deals.