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This practice note discusses LIBOR floor provisions, including current market trends in publicly filed credit agreements and commitment letters from the second half of 2020 and first half of 2021. Lenders tended to increase LIBOR floor percentages in 2020 during the height of COVID-19 in response to the dropping LIBOR benchmark rate. With a stabilizing market in 2021 and the end of LIBOR as a benchmark rate in sight, lenders have not focused on LIBOR floors in recent transactions and LIBOR floor rates have fallen back closer to the norm of 0% in the first half of 2021.
The following analysis is based on 123 publicly filed credit agreements that included a LIBOR floor from the second and third quarters of 2020 and 186 publicly filed credit agreements that included a LIBOR floor from the fourth quarter of 2020 and the first quarter of 2021. The data analyzed in this practice note was obtained using Market Standards, the searchable database from Practical Guidance of publicly filed credit agreements and commitment letters that enables users to search, compare, and analyze over 2300 credit agreements using approximately 90 detailed deal points and over 370 commitment letters using approximately 70 deal points to filter search results. For more information on Market Standards, click here.
For more information on recent trends concerning LIBOR floors, see Interest Rate Provisions in Credit Agreements, SOFR Loan Documentation: 8 Things for Borrowers to Think About, The Client Asks: What Happens When LIBOR Ends?, and LIBOR Replacement Resource Kit.
Countries sometimes attempt to stimulate their economies by reducing benchmark interest rates, including LIBOR. Benchmark rates have at times been reduced to zero or even been negative. Due to the potential for benchmark rates to be reduced, lenders often include a benchmark floor in their credit agreements, which commonly was 0% prior to COVID-19.
During the height of COVID-19 in the second and third quarters of 2020, the U.S. Federal Reserve lowered benchmark rates to near zero. Many lenders began to counteract such decline in benchmark rates by increasing the LIBOR floor in their transactions to percentages greater than zero, typically in the range of 0.5% to 1.25%. Due to optimism that the economy is recovering and as the LIBOR cessation date is approaching at the end of 2021, banks have become less focused on increasing LIBOR floors. In the last quarter of 2020 and into 2021, the number of transactions with a LIBOR floor above 0% has steadily declined.
Out of 123 credit agreements surveyed from the second and third quarters of 2020 that included LIBOR floors, 64 deals (52%) included a LIBOR floor greater than 0%, and 59 deals (48%) included a 0% LIBOR floor.
Visualization of LIBOR Floors Q2 2020 and Q3 2020
Source: Market Standards, date range 4/1/2020 to 9/30/2020
Of those 64 deals with a LIBOR floor greater than 0%, 57 deals had a LIBOR floor between 0.1% and 1%. Seven deals had a LIBOR floor greater than 1% ranging from 1.5% to 2%.
Out of 186 credit agreements surveyed from the fourth quarter of 2020 and the first quarter of 2021 that included a LIBOR floor, 50 (27%) deals included a LIBOR floor greater than 0% ranging from 0.25% to 1%. The remaining 136 (73%) deals had a LIBOR floor of 0%.
Visualization of LIBOR Floors Q4 2020 and Q1 2021
Source: Market Standards, date range 10/1/2020 to 3/31/2021
June 3, 2021
CWGS Group, LLC
Goldman Sachs Bank USA
$1.1 billion initial term loan commitment $65 million initial revolving commitment
Retail—Auto Dealers and Gasoline Stations
Applicable Interest Rate Margin
June 2, 2021
Amended and Restated Credit Agreement
Stitch Fix, Inc.
Silicon Valley Bank
$100 million revolving commitment
Retail—Catalog and Mail-Order
May 24, 2021
Fourth Amended and Restated Credit Agreement
MSA Safety Incorporated, et al.
PNC Bank, National Association
$900 million revolving credit facility
Orthopedic, Prosthetic and Surgical Appliances, and Supplies
April 13, 2021
Revolving Credit Agreement
Chipotle Mexican Grill, Inc.
JPMorgan Chase Bank, N.A.
$500 million revolving commitment
Term Credit and Guaranty Agreement
Jefferies Finance LLC
Wholesale—Drugs, Drug Proprietaries, and Druggists' Sundries
March 31, 2021
American Electric Power Company, Inc.
Wells Fargo Bank, National Association
$1 billion revolving commitment
March 19, 2021
Third Amended and Restated Credit Agreement
Community Healthcare Trust Incorporated
$400 million revolving and term commitments
Real Estate Investment Trusts
February 23, 2021
Amended and Restated Revolving Credit Agreement
Acadian Asset Management LLC, as assignee of Brightsphere Investment Group Inc.
$125 million revolving commitment
February 19, 2021
Term Loan Credit Agreement
PPG Industries, Inc.
$2 billion term loan commitment
Paints, Varnishes, Lacquers, Enamels, and Allied Products
January 29, 2021
Loan and Security Agreement
Credit Acceptance Funding LLC 2021-1
Fifth Third Bank
$100 million term commitment
Personal Credit Institutions
January 13, 2021
Asset-Based Term Loan Agreement
$90 million term loan commitment $50 million delayed draw term loan commitment
Retail—Apparel & Accessory Stores
December 30, 2020
AssetMark Financial Holdings, Inc.
Bank of Montreal
$250 million revolving commitment
November 2, 2020
Fifth Amended and Restated Credit Agreement
Matrix Service Company
$200 million revolving commitment
Construction—Special Trade Contractors
October 1, 2020
Amendment and Restatement Agreement
Capital One, N.A.
$150 million revolving commitment
September 3, 2020
Purple Innovation, LLC
KeyBank National Association
$55 million revolving commitment $45 million term loan commitment
August 24, 2020
Exit Term Loan Credit Agreement
Pyxus Holdings, Inc.; Pyxus International, Inc.; Pyxus Parent, Inc.
Alter Domus (US) LLC
$213.42 million term commitment
In no event shall the LIBO rate be less than 1.5%
August 7, 2020
Amended and Restated Agreement
$300 million original revolving commitment $100 million incremental revolving commitment
Services—Business Services, Not Elsewhere Classified
If the LIBO Screen Rate as determined is less than 0%, the Screen Rate shall for all purposes of the credit agreement be 0%
July 28, 2020
Waste Management, Inc.
Mizuho Bank, Ltd.
$3 billion revolving commitment
If the Eurocurrency rate is less than 0%, then such rate shall be deemed 0% for purposes of the credit agreement
June 30, 2020
Term Loan Agreement
Argo SA LLC
$75 million term loan commitment
Electromedical and Electrotherapeutic Apparatus
LIBOR floor is 2.0%
Carnival Corporation Carnival Finance LLC
$1.86 billion term loan facility
If the LIBO Screen Rate is less than 0%, then such rate shall be deemed to be 0% for purposes of the credit agreement
May 3, 2021
Oasis Petroleum Inc.
$500 million bridge commitment
Crude Petroleum and Natural Gas
If the LIBO Screen Rate is less than 1.0%, such rate shall be deemed to be 1.0% for purposes of calculating such rate
April 22, 2021
Project Mansfield US$2,500,000,000 Bridge Facility Commitment Letter
Skyworks Solutions, Inc.
$2.5 billion bridge facility commitment
Semiconductors and Related Devices
If the LIBO Screen Rate is less than 0%, such rate shall be deemed to be 0%
March 22, 2021
Project Spire Bridge Commitment Letter
Citibank, N.A.; Citicorp USA, Inc.; Citicorp North America, Inc.; Citigroup Global Markets Inc.
$1.5 billion senior unsecured term bridge facility commitment $2.5 billion senior unsecured term bridge facility commitment $3.5 billion senior unsecured revolving credit facility commitment
Wholesale—Computers, Peripherals, and Software
Adjusted LIBOR is the greater of 0% and LIBOR as determined
February 18, 2021
Project Jagman Amended and Restated Commitment Letter
Peraton Corp.; Peraton Inc.
JPMorgan Chase Bank, N.A.; Alter Domus (US) LLC
$3,775,000 senior secured incremental term loan facility commitment $200 million incremental revolving commitment $1,340,000 incremental senior secured second lien term loan facility commitment
Services—Computer Processing and Data Preparation and Processing
LIBOR for purposes of calculating interest on any loan under the second lien term facility shall be deemed to be not less than 0.75%
January 31, 2021
Project Venus Commitment Letter
Horizon Therapeutics USA Inc.
$1.3 billion incremental term loan commitment
In no event shall the LIBO rate applicable to the term loan facility be less than 0.50%
December 4, 2020
Project Safari Commitment Letter
Safari Parent, Inc.
HPS Investment Partners, LLC Ally Bank
$395.60 million first lien term loan facility commitment $169.40 million first lien delayed draw facility commitment $100 million senior secured asset-based facility commitment
Deep Sea Foreign Transportation of Freight Establishments
○ Ranges from 2.00% to 2.50% for Eurodollar loans excluding supplemental amount and from 4.00% to 4.50% for supplemental amount, depending on average excess availability
Adjusted LIBOR in no event shall be less than 1.0%
November 2, 2020
Tuesday Morning, Inc.
JPMorgan Chase Bank, N.A.
$110 million senior secured revolving credit facility commitment
The adjusted LIBO rate shall have a floor of 0.50% at all times
September 28, 2020
The Providence Service Corporation
Jefferies Finance LLC
$30 million senior secured first lien revolving facility commitment $600 million senior unsecured bridge loan facility commitment
Three-month LIBOR shall in no event be less than 1.0%
August 12, 2020
Bridge Facility Commitment Letter
Roper Technologies, Inc.
Bank of America, N.A.
$4 billion 364-day senior unsecured bridge facility commitment ($2.5 million tranche A and $1.5 million tranche B)
If the LIBOR rate (or the base rate) is less than 0%, such rate shall be deemed 0% for purposes of the bridge facility
July 15, 2020
Senior Secured Superpriority Debtor-In-Possession Revolving Credit Facility Commitment Letter
California Resources Corporation
$483,010,655.62 senior secured superpriority debtor-in-possession revolving credit facility commitment
Crude Petroleum and Natural Gas
1.00% LIBOR floor
To find this article in Lexis Practical Guidance, follow this research path:
RESEARCH PATH: Practical Guidance, Finance
LIBOR Transition to SOFR in Credit Agreements
SOFR Loan Documentation: 8 Things for Borrowers to Think About
The Client Asks: What Happens When LIBOR Ends?
LIBOR Replacement Resource Kit
Market Trends 2019/20: LIBOR Succession Clauses
Market Trends 2020: COVID-19 Ramifications in Loan Documents
LIBOR Replacement Clause (Hardwired)
LIBOR Replacement Clause (Amendment)
View this content in Practical Guidance, Finance
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