Market disruption clauses in (LIBOR-based) facility agreements [Archived]


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert
Practice notes

Market disruption clauses in (LIBOR-based) facility agreements [Archived]


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert

Practice notes
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ARCHIVED: This Practice Note has been archived and is not maintained.

In summary, a market disruption clause sets out how interest is calculated for a loan if a lender’s cost of funding the loan is in excess of London Interbank Offered Rate (libor) (or other designated benchmark)—this can happen in particular where there are problems with the financial system leading to the freezing of markets or solvency problems with the particular lender. Either of these is likely to result in an increased cost of funding for the lender.

Market disruption clauses are usually included in facility agreements where interest is calculated by reference to a floating rate such as LIBOR or Euro Interbank Offered Rate (euribor). This Practice Note deals with market disruption clauses in the context of LIBOR-related syndicated facilities. Equivalent considerations apply to syndicated facilities which calculate interest rates by reference to EURIBOR and other benchmark rates.

The transition away from LIBOR to risk-free rates such as SONIA will affect the drafting of market disruption provisions. For more information,

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Jurisdiction(s):
United Kingdom
Key definition:
LIBOR definition
What does LIBOR mean?

The London Interbank Offered Rate (LIBOR) is the daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market).

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