3 Months LIBOR / Full year cash interest calculation
Hi! I have a question in partiular for Leveraged Finance experts.
When calculating the cash interest, it is common sense to take the 3M LIBOR rate. Then you would say (please disregard any swap transaction), cash interest is applicable to the debt amount * (3M LIBOR + margin).
But my problem is that I dont understand why the 3M LIBOR is taken and not the 12 months LIBOR e.g..
Is the 3M LIBOR a rate p.a.? So an annualized rate?
Would the maths, to calculate quarterly interest payments, then be:
(3M LIBOR + margin) / 4
Is this correct?
Thanks for response
LIBOR is used on loans, which have quarterly interest payments, calculated by the 3M LIBOR rate + spread at the beginning of the period. So annual interest would be Q1 3M LIBOR +Spread + Q2 3M LIBOR +Spread+Q4 3M LIBOR +Spread.
But that is to say... I would have to annualize the 3M LIBOR by myself?
The thing is that I have seen spread sheets by banks, where the 3M LIBOR was used as a full year base rate.... this confuses me....
LIBOR rates are quoted as an annualized rate (360 day convention)
Excellent! I had the same question and response from Kenny_ Powers_CFA helped.
Quick LIBOR question (Originally Posted: 09/25/2013)
Hi all,
If 3 month LIBOR is currently 25bps, then when I model it out, if the facility is based on L + 250, do i model it out as 250bps+25bps for annual interest expense? or do i do 250bps + 4*(25bps)=350bps to get to annual interest?
Thank you!
The rates you see should already be annualized bro.
2.75%
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