I have a LIBOR based loan. What is my risk if LIBOR goes away?
Most existing or “legacy” loan documents do not contain workable fallback provisions should LIBOR no longer be available.
Depending on the fallback language in your loan documents, if the loan documents contain any, the cessation of LIBOR could create significant P&L losses or lead to expensive litigation.
For hedging clients, their ISDA documents may be amended either through a bilateral negotiation or through an ISDA Fallback Protocol. If the ISDA fallback provisions do not match the terms of the hedged items, the borrower could be exposed to unanticipated “basis risk” in addition to other less obvious risks such as spread risk and accounting or tax risk.