Actionable Ideas for Companies and Sponsors

Refinancing LIBOR Debt with EURIBOR Debt

Given the rate environment in Europe, there is an opportunity for companies with European operations and/or cash flows to significantly reduce their overall cost of debt by refinancing existing LIBOR loans with EURIBOR loans. The difference between 3-month LIBOR (~2.6%) and 3-month EURIBOR (~ -0.3%) is driving substantial savings because the equivalent LIBOR and EURIBOR term loans have recently been pricing with the similar spreads (within 25-50bps) above their applicable reference rate. Recently, Power Solutions executed a cross-border financing, pricing their pari passu EURIBOR and LIBOR based loans at E+375 and L+350, respectively. Taking in account the 0% EURIBOR Floor of the E+375 term loan, the company is paying ~235 bps less on that portion of their debt. We encourage clients to consider this refinancing alternative to achieve a lower cost of debt and a natural hedge for Euro cash flows. In addition, the execution of these refinancings is straightforward, leveraging existing documentation, and can be accomplished for transactions of €200 million or greater.