Challenges in Public and Private Variable Rate Debt

Executive Summary

  • Currently, there is a dislocation between SIFMA resets and its theoretical relationship with 1 month LIBOR
  • Pre-2008 financial crisis, SIFMA reset between 60% and 70% of 1mL
  • The current SIFMA / 1 month LIBOR ratio is approximately 86%
  • Impact on SIFMA market is primarily a function of the decrease in demand due to Money Market Reform
  • In the private Direct Purchase (“DP”) market, the threat of an interest cost increase due to a change in corporate tax rates is viewed as more probable
  • Depending on the application of the corporate tax language and the prevailing 1 month LIBOR rate, the cost increase can be significant

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