Libor floors remain in institutional market, but are lower in 4Q20

As the Libor rate remains at low levels, investors continue to demand Libor floors in the institutional market. The average 3-month Libor rate is at an average of 0.22% so far in 4Q20, this is down from 0.25% in 3Q20 and is roughly 130bp below 1Q20’s average. The precipitous drop in Libor rates led to the reappearance of Libor floors in the institutional market.
 
And while a whopping 91% of first-lien institutional term loans carry a floor so far this quarter, the shift towards lower floors that took place in 3Q20 has intensified this quarter. In the last two quarters, most deals (74% in 2Q20 and 60% in 3Q20) carried a 1% floor. This quarter, a much lower 32% of deals carry a 1% floor.
 
Instead, so far in 4Q20, the majority or 59% of first-lien institutional term loans carry a floor of 0.5% or 0.75%. This is up from 22% in 3Q20 and 5% in 2Q20. In the syndicated middle market, 59% of the deals have been done with a 0.75% floor. However, in the direct lending market, lenders say that 1% floors are sticking in this market so far.