It is not uncommon for governments to have investments, debt, and/or other obligations (e.g., bonds, loans, and leases) that have a variable interest rate. To avoid the potential cash flow or market-value volatility that could result from fluctuations in interest rates, governments sometimes enter into hedging agreements in order to offset the interest rate fluctuations. Many governments use the London Interbank Offered Rate (LIBOR) or another interbank offered rate (IBOR) as a reference rate for determining payments to be made or received for hedging derivative instruments and for leases. In response to evidence that it may be subject to manipulation, LIBOR will no longer be maintained and published in its current form after the end of 2021.
As a result, many kinds of contracts that reference LIBOR will need to be amended, replaced, or simply terminated.
- Publication date: December 2020
- Author: Todd Buikema, CPA