FLOATING RATE LOANS

摘要

While many companies tend to avoid executing loans or hedges with exotic features, floating rate loan agreements that include an interest rate floor have been more common in recent years given the low interest rate environment in the eurozone. A reason lenders may want to include floors in loan agreements is to provide a minimum yield when interest rate levels are depressed without needing to increase their loan margin. For example, a 1 % Libor floor implies that to the extent that Libor settings are below the 1 % level, a minimum of 1 % is payable on the loan. To the extent that Libor settings are higher than 1 %, then the floor would be of no consequence. Furthermore, with one-month and three-month Euribor levels turning negative this year following the European Central Bank's (ECB) policy decisions, interest rate floors at 0% are becoming more popular.