White Paper – What Loan Investors Need to Know About LIBOR Floors

Loan fund investors may ask this question once the Federal Reserve takes its long-awaited first steps to normalise short-term interest rates. This is because of the preponderance of so-called “LIBOR floors” within the approximately $835 billion U.S. senior loan market. While we don’t know exactly when or at what pace the Fed will raise the fed funds target rate, recent statements from the central bank suggest that liftoff will occur in the relatively near future. With the reality of “when and by how much” — as opposed to “if” — more firmly in play, investors are well advised to contemplate in advance how loan fund income and yields will react to rising rates.