Libor floor

A feature sometimes used in pricing debt instruments whose interest payments are linked to Libor, especially loans. Loans with a Libor floor pay an interest rate of Libor plus the applicable margin so long as Libor remains above the specified floor level. If, however, Libor falls below the floor, the interst rate is the floor level plus the applicable margin. Libor floors have been commonly used in the low Libor environment which started in early 2008. A commonly used Libor floor is 2%.

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