The London Interbank Offered Rate (LIBOR) is a daily reference rate based on the interest rates at which major global banks lend to one another. LIBOR is the world’s most widely used benchmark for short-term interest rates.
There are numerous LIBOR rates corresponding to different maturities (from overnight to one year) and different currencies. In general the LIBOR rates for a given currency are lower than the corresponding government bond yield.
The decision of which LIBOR rate to use in a leveraged buyout (LBO) transaction is a crucial one as it will have a major impact on the interest payments required to service the debt.
The most common LIBOR rate used in LBO transactions is the 3-month USD LIBOR rate. This is because most LBO debt is denominated in US dollars and the 3-month maturity is a good compromise between the shorter maturities (which are more volatile) and the longer maturities (which can be less attractive to lenders).
However there are situations where another LIBOR rate may be more appropriate. For example if the LBO debt is denominated in Euros the 3-month EUR LIBOR rate would be more relevant.
Additionally the choice of LIBOR rate will also depend on the length of the loan. For shorter loans the 1-month LIBOR rate may be more appropriate while for longer loans the 6-month or 1-year LIBOR rate may be more appropriate.
ultimately the decision of which LIBOR rate to use in an LBO transaction is a complex one that depends on a number of factors. However the 3-month USD LIBOR rate is the most commonly used rate and is a good starting point for most transactions.
What is a Libor Rate?
The London Interbank Offered Rate (LIBOR) is the rate of interest at which banks offer to lend money to one another in the wholesale money market in London.
Who sets the Libor Rate?
The Libor rate is set by a panel of banks.
What is the purpose of the Libor Rate?
The Libor rate is used as a benchmark for short-term interest rates.
How often is the Libor Rate set?
The Libor rate is set daily.
What is the Libor Rate used for?
The Libor rate is used to help determine rates for adjustable-rate mortgages business loans and financial instruments known as floating-rate notes.
What is the relation between the Libor Rate and the Federal Funds Rate?
The Libor rate is usually lower than the federal funds rate.
How does the Libor Rate influence other interest rates?
The Libor rate influences other interest rates by setting a benchmark that other rates can be based off of.
What is the difference between the Libor Rate and the Prime Rate?
The Libor rate is the rate at which banks offer to lend money to one another while the prime rate is the rate at which banks lend money to their customers.
What are the different types of Libor Rates?
There are different Libor rates for different currencies and the rates are also broken down by the length of the loan.
What is the shortest length of time for which a Libor Rate is set?
The shortest length of time for which a Libor rate is set is overnight.
What is the longest length of time for which a Libor Rate is set?
The longest length of time for which a Libor rate is set is 12 months.
What currencies have a Libor Rate?
The currencies with a Libor rate are the US dollar the British pound the Japanese yen the Swiss franc and the Euro.
What is the US dollar Libor Rate?
The US dollar Libor rate is 0.
What is the British pound Libor Rate?
The British pound Libor rate is 0.
What is the Japanese yen Libor Rate?
The Japanese yen Libor rate is 0.